Default Rate on First Mortgages Up 14 Percent since August

January 18, 2012 (Jeff Alan)

Monthly default rates on first mortgages continued to rise for the fourth consecutive month in December, pushing the S&P/Experian Consumer Credit Default Indices up slightly to 2.24 percent from 2.22 percent in November.

First mortgage default rates increased from 2.17 percent in November to 2.19 percent in December and are 14.1 percent higher than in August when default rates first began to rise. The default rate at that time was 1.92 percent.

Default rates on second mortgages also increased, rising from 1.26 percent in November to 1.33 percent in December. Second mortgage default rates had declined the previous two months.

Mortgage default rates have been steadily declining since 2009 when second mortgage default rates peaked at 4.66 percent in March, followed several months later by first mortgage defaults which peaked at 5.67 percent in August.

A year ago, the default rate on first mortgages was 2.93 percent and for second mortgages, the default rate was 1.74 percent.

Default rates on auto loans also worsened in December with rates increasing to 1.27 percent in December, up from 1.17 percent in November, while default rates on bank cards were the only category in the Indices to see improvement, decreasing from 4.91 percent in November to 4.60 percent in December.

David M. Blitzer, Managing Director and Chairman of the Index Committee for S&P Indices, stated, β€œLed by the mortgage markets, the second half of 2011 saw a slight reversal of the two-year downward trend in consumer credit default rates. First mortgage default rates rose for the fourth consecutive month, as did the composite. Since August, first mortgage default rates have risen from 1.92% to the 2.19%. The composite also rose those months, from 2.04% to 2.24%. The recent weakness seen in home prices is reflected in these data. Bank card default rates, on the other hand, were favorable, falling to 4.6% in December. This is more than a full percentage point below the 5.64% we saw as recently as July 2011.”

Three of the five Metropolitan Statistical Areas (MSAs) posted increases in default rates in the monthly Indices with Miami posting the largest default rate increase, moving up 0.26 percentage points to 4.47 percent in December from 4.73 percent in November. In December 2010, the default rate in Miami was 10.15 percent.

Dallas posted the second largest increase, rising 0.18 percentage points to 1.56 percent in December from 1.38 percent in November but down from 3.07 percent a year earlier. The default rate in Los Angeles increased by 0.01 percentage points to 2.54 percent in December from 2.53 percent in November and was also down from a year earlier when the default rate stood at 3.07 percent.

The default rate in Chicago remained unchanged from the previous month at 2.84 percent in December, but was still down from 3.14 percent a year earlier.

New York was the only MSA to post a decline in the default rate, falling from 2.21 in November to 2.13 percent in December. A year ago, the default rate on New York was 3.01 percent.

Although not welcomed, the increase in mortgage default rates had been anticipated as delinquency rates have been on the rise over the past several months. TransUnion previously predicted a rise in mortgage delinquencies was expected to last at least through the first quarter of 2012 and mortgage giant Freddie Mac recently reported that delinquencies have been on the increase over the previous three months.

Tags: S&P, Experian, Consumer Credit Default Indices, mortgage default rates, auto loan default rates, bank card default rates

Source:
S&P/Experian