The number of borrowers choosing to fall behind on payments on U.S. home loans packaged into bonds without government backing has held steady over the past year, meaning the “strategic delinquencies” account for a larger share of new late payments, according to JPMorgan Chase & Co.
Strategic delinquencies, or mortgages that turn 60 days late after home-price drops wipe out the equity of homeowners who are remaining current on other debt, totaled between about 12,000 and 14,000 a month over the past year among the loans, JPMorgan analysts led by John Sim wrote in a Sept. 30 report.
“The more sophisticated prime and Alt-A borrowers are significantly more likely to choose to go delinquent, even when they appear to have the means to continue paying,” the New York-based analysts said.
The share of strategic delinquencies among the total has risen to about 26 percent to 27 percent from 20 percent a year ago, according to the report.
Amherst Securities Group LP analyst Laurie Goodman said lenders need to reduce principal for homeowners to stem the foreclosure crisis, which otherwise may engulf more than 10 million additional properties, she estimated.
A record of almost 33 percent of the $1.2 trillion of so-called securitized non-agency loans are at least 30 days delinquent, in foreclosure or have been turned into seized property, according to Bloomberg data based on August bond reports. That also reflects a slowdown in liquidations of bad loans amid probes into servicers’ use of flawed paperwork.
California Attorney General Kamala Harris said on Sept. 30 that she is rejecting a proposed nationwide settlement with U.S. banks over their foreclosure practices, after reports that the deal might have included money to fund principal forgiveness and other loan modifications. She said the proposed agreement is “inadequate.”
About 10.88 million homes, or 22.5 percent of those with a mortgage, were “underwater” as of June 30, according to CoreLogic Inc., a Santa Ana, California-based real-estate data provider. Home prices around 20 of the U.S. largest cities have tumbled almost 31 percent from their July 2006 peak, according to an S&P/Case-Shiller index.
Values will probably fall an additional 7 percent until bottoming next year, according to the JPMorgan analysts, who were the top-ranked for non-agency mortgage securities in Institutional Investor magazine’s 2011 poll.
The share of strategic delinquencies among prime non-agency mortgages, which were typically jumbo loans larger than government-supported Fannie Mae and Freddie Mac could finance, is now almost 40 percent, up from about 30 percent a year, according to their report.
For Alt-A loans, considered between prime and subprime in terms of expected defaults, the share is about 35 percent, up from about 30 percent. For subprime loans, the amount is about 25 percent, up from less than 20 percent, their report showed.
The ratio is about 15 percent for loans less than $100,000, compared with almost 35 percent for mortgage larger than $400,000, according to the analysts. The share among borrowers with the highest credit scores was more than 40 percent, compared with about 20 percent for those with the lowest.
About 10,000 homes a month are being liquidated following strategic defaults on securitized non-agency mortgages, a figure that has also held steady, they said. The loans represent about 12 percent of total U.S. home-mortgage debt, according to Federal Reserve data.