FBR: Subprime Defaults Hit Record High

The default rate on subprime mortgage loans hit a record 13.44% in June after rising 100 basis points from that of May, and the foreclosure rate jumped to 5.44%, which also topped the previous record set back in August 1997, according to a Friedman Billings Ramsey report.The default rate on alternative-A loans moved up from 2.69% in May to 3.0%. "The default rates on alt-A and subprime loans deteriorated sharply in June from May, after six months of gradual erosion," FBR managing director Michael Youngblood said. During 2006, underwriting standards on subprime loans became progressively worse with each successive month, Mr. Youngblood said. He noted that debt-to-income ratios rose from 46% in May to 47% in June. The FBR researcher said he expects default rates to drift higher through May of next year. (The default rate includes loans 90 days or more past due, those in foreclosure, and real estate owned.) FBR can be found on the Web at http://www.fbr.com.