Investor Loan Defaults Rising Fastest

It is common knowledge that subprime loans are in shambles. It is less well known, however, that investor loans are faring far worse than other type of subprime product.

The Mortgage Bankers Association said, "Defaults on mortgages where the owner does not live in the house are a major driver of the defaults in four of the states with the fastest rising rates of seriously delinquent loans."

At the top are Nevada and Florida, which face "the fastest increases in delinquent loans in the country," according to the MBA. Arizona and California follow up in third and fourth place, also ranking among "the states facing the fastest increases in delinquent loans in the country."

"Defaults are on the rise in most parts of the country, but it should be recognized that it is not always the case of a homeowner losing his or her home but is often the case of an investor gambling on a continued increase in home values and losing that gamble," said Doug Duncan, MBA chief economist.

As of June 30, 32% of prime mortgage defaults in Nevada were on non-owner-occupied properties, along with 24% of subprime loans. In Florida, the non-owner-occupied shares were 25% for prime loans and 14% for subprime loans. In Arizona, 26% of prime loan defaults were non-owner-occupied and 18% of subprime loans. In California, the rate was 21% of prime defaults and 15% of subprime. In the rest of the country non-owner-occupied homes accounted for only 13% of prime defaults and 11% of subprime defaults.

Moreover, the share of non-owner-occupied loans of all loan defaults, the MBA said, "closely parallels the share of those loans originated in 2005." (See tables.) The MBA defines as defaulted mortgages all loans that are 90 days or more past due or in foreclosure.

Commenting on reasons behind the data and the significant regional differences, Mr. Duncan noted that California, Nevada, Arizona and Florida "were among the states with the fastest home price appreciation over the last five years.

"This rapid price appreciation attracted both speculators and homebuilders, a volatile combination that lead to an oversupply of homes that was beyond the capacity of the local populations to support. When this oversupply became apparent and prices began to fall, many of these investors simply walked away from their mortgages."


Prime defaults Prime loan

as of June 30 originations in 2005

Nevada 32% 29%

Arizona 26% 29%

Florida 25% 32%

California 21% 14%

All other states 13% 15%

Total US 16% 17%


Subprime defaults Subprime

as of June 30 originations in 2005

Nevada 24% 14%

Arizona 18% 14%

Florida 14% 15%

California 15% 7%

All other states 11% 10%

Total US 12% 10%

Source: MBA, Home Mortgage Disclosure Act 2005 Report.

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