Fitch: Flatter Prices Helped Spur B&C Defaults

An analysis by Fitch Ratings concludes that the flattening of home price appreciation last year contributed to the rising number of defaults on subprime home loans.Using local metropolitan area data, Fitch found that subprime loans originated in the first quarter of 2006 experienced home price appreciation of just 0.5% last year, but that the default rate jumped to 8.3% of outstanding mortgage balances. By contrast, for the full year of 2005, subprime originations experienced average home price appreciation of 17% after 12 months and the default rate was only 1.7%. Fitch says the data show that home price deflation "is driving higher defaults of recently originated subprime mortgages." Fitch can be found on the Web at http://www.fitchratings.com.