B&C Defaults Approach 11%

The subprime default rate hit 10.52% in January, up 40 basis points in one month, but researchers at Friedman Billings Ramsey continue to predict that defaults won't breach 11% this year.

The default rate on securitized subprime loans has jumped from 6.83% in January 2006 to 10.12% in December. From October to November, the default rate surged 101 bps.

"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 to 10.97% by December 2007," FBR managing director Michael Youngblood said.

Mr. Youngblood made a similar statement in FBR's last monthly report, which showed defaults rose by only 3 bps from November to December.

FBR researchers define defaults as loans 90 days or more past due, foreclosures and real estate-owned. Meanwhile, subprime foreclosures continue to creep up. The foreclosure rate hit 4.33% in January, up 15 bps from December and up from 2.57% in January 2006.

Alt-A loans saw a 20 bp jump in defaults in January, bringing the default rate up to 1.86%. Alt-A defaults are up 97 bps since January 2006. The foreclosure rate is 0.88%.

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