Although the volume of subprime mortgage delinquencies seems to be steadily declining, US foreclosure rates continue to rise and many analysts believe that this trend could be attributed to increased delinquencies in the prime mortgage market. While many of the risky subprime mortgages have already been foreclosed upon or defaulted, prime mortgages – which comprise a substantially larger portion of the mortgage market – are increasing its share of loans in default today. See the following article from HousingWire for more on this.
Mortgage analytics firm CoreLogic is reporting, in data provided to HousingWire, subprime delinquencies are steadily trending downward. Additionally, the firm’s main economist warns the performance of prime mortgages may be a growing concern, especially considering economic hardship can suddenly hit any American family, regardless of the types of housing debt they hold.
CoreLogic reports 2,376,120 American subprime mortgages are still active in the market in June, down 12.5% from a year ago.
Overall, the numbers show that despite the decrease in volume, subprime mortgages still account for the grand percent of current delinquent loans and foreclosures across the board.
As of June, 39.6% of the subprime loan market is 60 days delinquent — 35% of that is 90 days delinquent, 13% of that are now in foreclosure and 3.8% of mortgages are real estate owned.
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But that’s comparable to the nearly 6.5 million prime mortgages that fit into the same delinquency categories, where 60+ day delinquencies are not showing a significant decline and foreclosures continue to steadily inch upward, now passing the 2% mark (see charts).
As made clear by the charts, there seems to be an inverse relationship between the total number of loans (which decreased 12.5% year-over-year) and the percentage of subprime loans that became 60 and 90 days delinquent in the same time period.
CoreLogic recorded that in June 2010, 39.6% of all subprime loans were 60 days delinquent, up from 39.2% a year previous. The firm also reported that 34.8% of subprime loans were 90 days delinquent, up from 33.8% in June 2009.
Senior economist at CoreLogic Mark Fleming said during the housing boom, subprime mortgages were the most vulnerable to delinquency and foreclosure because of the unfit models used to originate them. A borrower chose a mortgage based on the plan to refinance after two or three years when the value of their home appreciated. Home prices, however, did not go up and borrowers did not have the continued resources to pay their original mortgages. The loans originated in 2006 and 2007 that did made it through, are newer, less risky and survived prepayment shock.
The volume of these loans is depleting and the subprime universe now makes up roughly 5.4% of the total active loan market. Prime loans on the other hand, dominate the market in terms of loan type.
Prime loans, however, made it pass the housing bubble without much default or trouble because or they were not susceptible to price fluctuations. Fleming warned that the impact percentage of delinquent loans in the prime space have been masked because the volume is so huge. Compared to the less than 3.5 million subprime, there are about 40 million prime loans in the marketplace, 6.2% of which were 60 days delinquent in June 2010 and 3% of which were 90 days delinquent.
“If you’re looking at delinquencies and foreclosures by data type you’re comparing 16% versus 40%,” said Fleming in an interview. “But that’s 16% of 40 million loans (prime) versus 40% of only 2 million loans (subprime),” which equals 6,355,506 delinquent prime mortgages versus 950,448 delinquent subprime mortgages.
Fleming also mentioned that delinquency and foreclosure are “product agnostic” occurrences, meaning economic factors such as job loss don’t choose a person based on their mortgage. A borrower who losses his job and has a subprime mortgage is more likely to have trouble paying it than does a borrower with a prime mortgage who losses his job.
“Maybe we need policy to look at what kind of loans people have,” Fleming said with regard to decreasing delinquency. “If I were a policy maker I would be focusing law toward the prime space.”
This article has been republished from HousingWire. You can also view this article at HousingWire, a mortgage and real estate news site.