Digging Into Home Mortgage Defaults
Kurt Brouwer August 30th, 2007
The default rate (being late 90 days or more on mortgage payments) on homes is going up. But are those home occupied by the owner or are they investment properties owned by investors or speculators?
This report posted on the WSJ’s Real Time Economics blog indicates that a significant chunk of defaulted mortgages are non-owner-occupied homes [emphasis added]:
‘…Mortgages on non-owner occupied properties in Nevada accounted for 32% of prime mortgage defaults as of June 30 as well as for 24% of subprime loan defaults, the MBA said. In the rest of the country, nonowner occupied homes accounted for 13% of prime defaults and 11% of subprime defaults.
“Defaults are on the rise in most parts of the country, but it should be recognized that it is not always the case of a homeowner losing his or her home,” said Doug Duncan, the MBA’s chief economist. Rather, it’s “often the case of an investor gambling on a continued increase in home values and losing that gamble,” Duncan said in a statement. Defaulted mortgages are those that are at least 90 days past due or in foreclosure.
In Florida, defaults for nonowner occupied property mortgages made up 25% of prime loans and 14% of subprime loans. In Arizona, defaults for nonowner occupied properties made up 26% of prime loans and 18% of subprime loans. And in California, nonowner occupied property defaults made up 21% of prime loans and 15% of subprime loans. California, Nevada, Arizona and Florida were among the states with the fastest home-price appreciation over the last five years, Duncan noted.
“This rapid price appreciation attracted both speculators and home builders, a volatile combination that lead to an oversupply of homes that was beyond the capacity of the local populations to support,” he said. “When this oversupply became apparent and prices began to fall, many of these investors simply walked away from their mortgages.”…’
So this poses an interesting issue. Many people, including Senator Charles Schumer (D-NY) and Bill Gross, have agitated for some form of Federal loan bailout program (see here). I’m sympathetic to the family that is struggling to keep their home, but I see no reason to have a bailout program that benefits thousands of over-leveraged real estate speculators.
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