Could be a bigger pig than you think…

May 27, 2010

by Scott Sambucci


From this week’s Standard & Poor’s Structured Finance Intelligence update – “U.S. Residential Mortgage Default Index: Defaults Are Waning But Cumulative Default Rates Remain Extremely High For Recent Vintages” –

  • U.S. Residential Mortgage Default Index slowed in the first quarter of 2010 (OK, good…)
  • Additionally, the rate of increase, measured as a percent of the unpaid principal balance, is slowing (OK, good…)
  • Even though this slowdown may indicate signs of improvement, cumulative default rates have increased at an alarming pace for loans from all three credit grades (i.e., prime, subprime, and Alt-A) issued from 2005 to 2007 when loan seasoning is considered. (Gulp, uh-oh…)

What does the active market tell us? We saw fewer price reductions in 2009 and more so at lower price points (read: loan levels)… but reductions started moving higher at all price points in March 2010:

Altos 20-City Composite: Percentage of Active Sellers taking Price Reductions by Quartile

Year-over-year prices rebounded in 2009, and especially at lower price points (see: “The sub-prime pig is through the python“), but the rate of change has leveled off this Spring and is moving lower in the upper quartile prime mortgage space:

Altos 20-City Composite: Year-over-year price changes by quartile

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