Subprime Defaults Soar in 2006

The troubled subprime industry continues to be plagued by early defaults on adjustable-rate subprime loans originated in 2006, although the default rate on all subprime loans leveled off at 10.12% in December.

The default rate on subprime ARMs securitized in 2006 hit 4.62% in January, up 21% in just one month, according to a report by Friedman Billings Ramsey, Alexandria, Va.

The default rate of the 2006 origination year exceeds the 2005 origination year by 51.6% and the 2004 origination year by a whopping 137% at the same age, the FBR report says.

The early defaults have sparked massive loan buybacks and forced over 20 subprime lending shops to close their doors in the past few months.

(Default rates include loans that are 90 days or more past due, foreclosures and real estate-owned.)

A separate FBR report shows that the default rate on all outstanding subprime loans rose from 10.09% in November to 10.12% in December, which was a welcomed sign.

The subprime default rate had jumped from 6.9% in June to 9.1% in October.

"We do not expect any further monthly surges in default rates of subprime loans of similar magnitude in the year ahead. We expect rather a slow upward drift of default rates, assuming that the current labor market conditions do not worsen, to 10.97% by December 2007," FBR managing director Michael Youngblood said.

Meanwhile, the foreclosure rate on subprime mortgages rose only 4 basis points to 4.17% in December. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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