Rate of US mortgage defaults increases
Rate of US mortgage defaults increases
By Saskia Scholtes, Ben White and Michael Mackenzie in New York
Copyright The Financial Times Limited 2007
Published: March 14 2007 02:00 | Last updated: March 14 2007 02:00
Late payments and defaults on US mortgages increased in the fourth quarter to their highest level in three and a half years, the Mortgage Bankers' Association said yesterday, the latest in a series of ominous signals for the US mortgage market.
Late payments rose for all loan types but were driven by problems in the risky "subprime" sector, for home loans to borrowers with weak credit. The highest delinquency rates were on subprime adjustable-rate mortgages that begin at a low "teaser" interest rate but later reach much higher levels.
"The states hit hardest are not just the bubble states, but those states without particularly vibrant economies" such as Michigan, Iowa and states around the Gulf of Mexico, said T.J. Marta, fixed-income strategist at RBC Capital Markets.
Delinquency rates for subprime adjustable-rate mortgages reached 14.44 per cent in the fourth quarter of 2006, jumping 1.22 per cent in three months, the MBA said.
The overall mortgage delinquency rate increased to a seasonally adjusted 4.95 per cent in the fourth quarter, up from 4.67 per cent in the previous quarter and from 4.70 per cent in the fourth quarter of 2005.
Alan Ruskin, head of international strategy at RBS Greenwich Capital, noted that, although the data were broadly expected, many adjustable rates would soon start moving sharply higher - suggesting that the problems could get worse.
"The data will do nothing to assuage concerns for this sector, even if it also adds little fresh fuel to the fire. As such, it will keep heightened risk aversion intact," said Mr Ruskin.
The new figures came as troubles continued to ripple through some of the biggest US subprime lenders.
Accredited Home Lenders said it was exploring options to increase liquidity, including cutting jobs. The California-based lender said it had met $190m in margin calls from its lenders this year, two-thirds of them since February 15.
Accredited also said it was working with lenders to waive certain covenants, including requirements regarding levels of net income.
Accredited shares were down 64 per cent to $7.30 in early afternoon New York trading.
Meanwhile, the New York Stock Exchange said it would move to delist the shares of New Century Financial, the second-largest US subprime lender. The company also disclosed that the Securities and Exchange Commission was investigating the company's accounting.
New Century shares have lost most of their value amid the rise in subprime defaults and a disclosure earlier this month that federal prosecutors were conducting a criminal inquiry in the company's accounting and trading in its shares. The company has stopped granting new loans and creditors have largely cut off funding, suggesting it is on the brink of bankruptcy.
By Saskia Scholtes, Ben White and Michael Mackenzie in New York
Copyright The Financial Times Limited 2007
Published: March 14 2007 02:00 | Last updated: March 14 2007 02:00
Late payments and defaults on US mortgages increased in the fourth quarter to their highest level in three and a half years, the Mortgage Bankers' Association said yesterday, the latest in a series of ominous signals for the US mortgage market.
Late payments rose for all loan types but were driven by problems in the risky "subprime" sector, for home loans to borrowers with weak credit. The highest delinquency rates were on subprime adjustable-rate mortgages that begin at a low "teaser" interest rate but later reach much higher levels.
"The states hit hardest are not just the bubble states, but those states without particularly vibrant economies" such as Michigan, Iowa and states around the Gulf of Mexico, said T.J. Marta, fixed-income strategist at RBC Capital Markets.
Delinquency rates for subprime adjustable-rate mortgages reached 14.44 per cent in the fourth quarter of 2006, jumping 1.22 per cent in three months, the MBA said.
The overall mortgage delinquency rate increased to a seasonally adjusted 4.95 per cent in the fourth quarter, up from 4.67 per cent in the previous quarter and from 4.70 per cent in the fourth quarter of 2005.
Alan Ruskin, head of international strategy at RBS Greenwich Capital, noted that, although the data were broadly expected, many adjustable rates would soon start moving sharply higher - suggesting that the problems could get worse.
"The data will do nothing to assuage concerns for this sector, even if it also adds little fresh fuel to the fire. As such, it will keep heightened risk aversion intact," said Mr Ruskin.
The new figures came as troubles continued to ripple through some of the biggest US subprime lenders.
Accredited Home Lenders said it was exploring options to increase liquidity, including cutting jobs. The California-based lender said it had met $190m in margin calls from its lenders this year, two-thirds of them since February 15.
Accredited also said it was working with lenders to waive certain covenants, including requirements regarding levels of net income.
Accredited shares were down 64 per cent to $7.30 in early afternoon New York trading.
Meanwhile, the New York Stock Exchange said it would move to delist the shares of New Century Financial, the second-largest US subprime lender. The company also disclosed that the Securities and Exchange Commission was investigating the company's accounting.
New Century shares have lost most of their value amid the rise in subprime defaults and a disclosure earlier this month that federal prosecutors were conducting a criminal inquiry in the company's accounting and trading in its shares. The company has stopped granting new loans and creditors have largely cut off funding, suggesting it is on the brink of bankruptcy.
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