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Prime Borrower Defaults Accelerating In The Us

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http://www.cnbc.com/id/32688303

Mortgage Defaults Shifting to Prime Borrowers: Report

Published: Friday, 4 Sep 2009 | 7:00 AM ET

By: Robin Knight

America’s most credit-worthy borrowers are defaulting on their loans faster than those with poor financial records, according to a report in the Wall Street Journal.

The rate of mortgage delinquency among prime borrowers is accelerating and could mean that banks will soon be suffering more losses from the usually safe customers than from their less-reliable ones, the report said.

The number of subprime borrowers falling down on their mortgage repayments reached 25 percent in the first quarter, but has now leveled off, with only slight increases in the second quarter, the Journal said.

Prime loans make up 80 percent of US banks’ exposure to mortgages and credit cards, and so could quickly overtake subprime borrowers in causing the biggest financial headache as the recession bites, the report added.

"The subprime pain is in the rearview mirror," Sanjiv Das, head of Citigroup's mortgage business, told the Journal.

Many of the customers with high credit scores have lost their jobs and are struggling to keep up with payments while the jobs market remains extremely weak, the report said.

The total mortgage-delinquency rate, where borrowers were late for at least one payment, rose to a record high of 9.24 percent in the second quarter, according to the Mortgage Bankers Association.

The prime borrowers showed an increase of 5.8 percent in the quarter, compared to a 1.8 percent rise for subprime customers, the report said. However, the overall rate for delinquency still remains significantly lower for prime borrowers at 6.4 percent, compared to 24.4 percent for subprime borrowers, the Journal said.

"We view this as a change in the nature of the problem. These borrowers were underwritten conservatively, and they were able to manage their payments for some period of time," Michael Fratantoni, vice president of single-family home research for the Mortgage Bankers Association, told the Wall Street Journal.

Hang on - a default rate of 6.4% on 80% of US mortgage loans is about the same as a 24.4% default rate on 20% of US mortgage loans, isn't it?

Haven't they just admitted the size of the problem has just doubled at least and is getting worse?

Edited by AvidFan

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http://www.cnbc.com/id/32688303

Mortgage Defaults Shifting to Prime Borrowers: Report

Published: Friday, 4 Sep 2009 | 7:00 AM ET

By: Robin Knight

Hang on - a default rate of 6.4% on 80% of US mortgage loans is about the same as a 24.4% default rate on 20% of US mortgage loans, isn't it?

Haven't they just admitted the size of the problem has just doubled at least and is getting worse?

Jeez

So 1 in 11 mortgages are at least 1 payment behind. :blink::blink:

What is the UK figure?

And all this with the lowest interest rates EVER since people started getting mortgages...

Recovery? HA HA HA HA HA

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I assume subprime loans are sort of no deposit 100% or more LTV loans so the banks/taxpayers assume the risk

I assume prime loans are not first time buyers hence the cash made from previous properties will be used as a deposit hence the LTV will be probabaly much less than 75% in most cases and most of this type of loan wont off been made at the top of the market hence the risk to the banks/taxpayers will be managable as if these loans default the banks in most cases will sell the properties high enough to pay the loans off

Its no suprise at the high unemployment levels these problems come up and I guess if I was a prime morgagee in arrears and in a problem I would sell my property asap to try and retain as much money as i could then lose much more if foreclosed

A prime mortgagee is probably the type of person to work hard to prevent foreclosure hence I expect most these problems to be sorted out without foreclosing

Its a problem and rising unemploment is adding up but regardless of unemployment inflation will sort it for the banks even with high unemployment dont worry too much yet but keep watching

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