B&C Default Rate Continues to Soar

The default rate on subprime mortgage loans hit 19.4 % in October, more than double the rate from a year ago, and it is going to go higher, according to Friedman Billings Ramsey.

The default rate on non-agency securitized subprime mortgages has jumped from 9.1% in October 2006 to 19.4% in the space of 12 months.

Since July, the default rate has gone up 5 percentage points. From September to October, the default rate jumped 170 basis points. FBR managing director Michael Youngblood attributes the acceleration in defaults to weakening labor markets and falling housing prices.

"These substantial changes in a single month suggest that labor market conditions are worsening broadly across the United States. Indeed, we continue to believe that these conditions are characteristic of a recession in economic activity," he says in the Jan. 4 report. The managing director of fixed-income research tracks default rates in 363 metropolitan statistical areas, along with employment rates and housing prices. (The default rate includes loans 90 days or more past due, in foreclosure and REO.)

Mr. Youngblood is forecasting that the subprime default rate will hit 22% by October 2008. But he expects the next employment report by the Bureau of Labor Statistics will force an upward revision.

"Further deterioration in metropolitan employment will likely depress single-family house prices and both forces will jointly boost default rates of prime, alt-A and subprime loans as well as agency conforming mortgage loans and consumer loans of all varieties," he said. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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