FBR: Subprime Defaults Jump

The default rate on subprime mortgages jumped 170 basis points to nearly 19.5% in October, according to Friedman Billings Ramsey Investment Management, which cited weaker job markets and declining house prices as the causes of rapid deterioration in credit performance -- not resets. The default rate on nonagency securitized subprime mortgages jumped from 17.7% in September to 19.4% in October. And the default rate on alternative-A loans jumped 75 bps to 5.4% in October. "These substantial changes in a single month suggest that labor market conditions are worsening broadly across the United States," FBRIM managing director Michael Youngblood says in the report. "Indeed, we continue to believe that these conditions are characteristic of a recession in economic activity." The managing director of fixed-income research noted that resets of adjustable-rate subprime mortgages were not responsible for the October jump in default rates. However, the upward adjustment of mortgage rates "may drive the default of hybrid ARMs higher in the year ahead," he said. The report also shows that 8% of subprime mortgages and 2.5% of alt-A mortgages are in foreclosure. (The default rate includes loans that are 90 days or more past due, in foreclosure, or real estate owned.) FBRIM is a subsidiary of Friedman Billings Ramsey, which can be found online at http://www.fbr.com.