Saturday, August 16, 2008

Default distribution

CNN article on foreclosures

The delinquency rate for prime mortgages worth less than $417,000 was 2.44% in May, compared with 1.38% a year earlier, according to LoanPerformance, a unit of First American (FAF, Fortune 500) CoreLogic that compiles and analyzes residential mortgage statistics.

Delinquencies jumped even more for prime loans of more than $417,000, so-called jumbo loans. They rose to 4.03% of outstanding loans in May, compared with 1.11% a year earlier.

And prime loans issued in 2007 are performing the worst of all, failing at a rate nearly triple that of prime loans issued in 2006, according to LoanPerformance.

Think about that. Normally Jumbo prime mortgages have a *lower* default rate than those worth less than $417k. 4.03% is unsustainable. Expect to see down payment requirements continue to increase.

Oh yea... I've been predicting 25% required down payments for Jumbo for a while. For Superjumbo, I expect those mortgages to require pledged collateral that exceeds 40% of the home's 'value.' (Not an actual down payment, we're talking individuals who can pledge assets that the bank could accept. e.g., a medical practice.)

That 4% default rate is scary. Yes, its concentrated in CA, FL, NV, AZ, and the VA ex-urbs. But its spreading! The major recasts of Alt-A haven't started yet. Once that happens, we will see the jumbo market really fall apart.

Got Popcorn?


Laura said...


What is a superjumbo?

wannabuy said...

Jumbo is > $417k
Superjumbo is a loan for more than $1M, sometimes with a lower threshold. (e.g., $800k)

Got Popcorn?