Prime loan default rates double
WASHINGTON - Delinquency rates on the least risky home loans, which account for two-thirds of all mortgages, more than doubled last year, showing credit quality deterioration is spreading through the housing market, US regulators said.
Seriously delinquent prime loans climbed to 2.4 percent of total loans on Dec. 31, from 1.1 percent in the first quarter, the Office of the Comptroller of the Currency and Office of Thrift Supervision said yesterday. Mortgages in delinquency rose 30 percent in the fourth quarter, accounting for 4.6 percent of all home loans, the report showed.
"We're in unchartered territory, we've never seen the number this high before," said US Comptroller of the Currency John Dugan yesterday.
Prime loans account for most of the 35 million US mortgages, and 553,736 were seriously delinquent, or 60 days or more overdue, in the fourth quarter, the report showed. Credit quality declined for a third consecutive quarter, as mortgages that are current fell below 90 percent as of Dec. 31 from about 93 percent on March 31 last year.
The report also showed that mortgages modified in the first quarter, to help borrowers keep their homes, fell delinquent 41 percent of the time after eight months, and second-quarter modified loans had a 46 percent default rate, the report said. Third-quarter trends "are worsening," the agencies said.
"For the year and this quarter, we saw the same trend that we saw last time: quite high redefault rates, no matter how we measured them," Dugan said in a conference call with reporters.
He said higher redefault rates are likely related to stressful economic conditions and new loan plans are not producing sufficient reductions to make mortgages sustainable.
Federal Deposit Insurance Corp. chairwoman Sheila Bair, who is pushing for aggressive programs to help prevent foreclosures, said the report confirms that mortgages modified to lower the monthly payments "have a substantially lower re-default rate than other modifications."
The report shows that many mortgage servicers are relying on payment plans that don't reduce borrowers' monthly payments, she said in an e-mailed statement.