Default rates on prime loans have increased in the first quarter, escalating the number of houses added to foreclosed home for sale inventories.
Homeowners who have good credit and who were previously making their monthly home loan payments religiously are now unable to make payments because of joblessness.
In the first quarter, the number of prime loans past due by two months or more has increased to almost 3 percent of total prime loans, from only 1.1 percent in the first quarter last year, according to a report released by the Office of Thrift Supervision and Office of the Comptroller of the Currency.
John Dugan, Comptroller of the Currency, expressed his concern about the increases. The rise in default rates was always followed by a rise in foreclosed home for sale inventories. Compared to the last quarter of 2008, first-time foreclosure actions on prime loans increased by 22 percent.
Even non-economists know that job losses would trigger defaults, even in the cases of homeowners who had excellent credit and who had always been good debt payors. They also know that even good payors would just see their houses get added to foreclosed home for sale inventories if they have no other recourse.
The report showed that defaults on prime loans in the first quarter jumped to 661,914, compared to 250,986 in last year’s first quarter. Delinquencies of two months or more increased by 88 percent, compared to defaults in the first quarter last year.
Despite the provision of loan modification and loan refinancing programs to prevent these defaults from putting houses into foreclosed home for sale inventories, many of these defaults still moved on to actual foreclosures.
In the first quarter last year, approximately 53 percent of borrowers whose loans were modified had redefaulted two months or more after the modification while 63 percent redefaulted after one year.
Aside from job losses, the other major factor for loan redefault is negative equity – a condition reached when the home value becomes much lower than the loan amount.
Additionally, the report said that around 67 percent of troubled loans processed were modified by using two or more schemes, with around 70 percent adding missed payments and fines to the outstanding loan balance.
Only 13 percent froze the interest rates. It is not surprising then that many redefaulted and just let their properties get added to foreclosed home for sale inventories.
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