Mortgage Defaults Hit Four-year Low

Written by: Steve Cook   Tue, June 21, 2011 Beyond Today's News, Foreclosure Situation

Default rates on first and second mortgages sank lower than they have been since 2007 and 2006 as more and more homeowners are meeting their mortgage obligations on time.

According to May data from S&P/Experian, default rates on first mortgages decreased to 2.09 percent from 2.16 percent in April and defaults on second mortgages fell to 1.42 percent from 1.51 percent in April.

Mortgage default rates improved to the best levels in four years even as bank card defaults experienced a slight increase from 5.91 percent to 5.9 percent.  All of S&P/Experian’s defaults rates have improved steadily since the first of the year.

“While we might observe volatility from month-to-month, looking at default rates over the past few years it is easy to see that consumers have come a long way in fixing their balance sheets,” said David M. Blitzer, Managing Director and Chairman of the Index Committee for S&P Indices. “All indices show default rates below where they were this time last year and more so if you look back to 2008/2009.”

In fact, the indexes’ default rate for first mortgages fell to a level lower than it has been since September, 2007.  The May rate for second mortgages, 1.42 percent, matched the rate for March, which was lower than it has been since July, 2006.

“We do continue to see some differences among the cities. While Miami’s high unemployment rate contributes to its high default rate compared to some of the other cities, such as New York and Chicago, it is not the only variable. The latest MSA-level unemployment data show that at about 11%, Los Angeles and Miami have unemployment rates above the national average; however, the 2.39% default rate for Los Angeles is almost half that of Miami’s 5.31%. Among the other local factors affecting default rates is the aftermath of the housing bust. While both Los Angeles and Miami were among the cities with the largest home price increases, housing in southern California is doing better than housing in south Florida.”

Consumer credit defaults varied across major cities and regions of the U.S. Among the five major Metropolitan Statistical Areas (MSAs) reported in this release each month, Los Angeles and New York  continue to lead the way with the largest decrease in defaults rates to 2.39 percent and 1.94 percent, from 2.57 percent and 2.11 percent, respectively. Chicago and Miami were not far behind with defaults decreasing to 2.37 percent and 5.31 percent. Dallas’s default rates increased modestly this month to 1.59 percent from 1.56 percent.

Jointly developed by S&P Indices and Experian, the S&P/Experian Consumer Credit Default Indices are constructed to accurately track the default experience of consumer balances in four key loan categories: auto, bankcard, first mortgage lien and second mortgage lien. The Indices are calculated based on data extracted from Experian’s consumer credit database. This database is populated with individual consumer loan and payment data submitted by lenders to Experian every month. Experian’s base of data contributors includes leading banks and mortgage companies, and covers approximately $11 trillion in outstanding loans sourced from 11,500 lenders.

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