Freddie Mac: Delinquent Prime Borrowers Cite Hardships

FreddieMac.comUnemployment and income reduction are the primary reasons for serious delinquencies among prime borrowers, according to newly released data by Freddie Mac.
These borrowers with initially good credit ratings have the lowest overall delinquency rates, compared to subprime borrowers, but the impact of the prolonged recession is taking its toll on them as well, said Freddie Mac Chief Economist Frank Nothaft, in the mortgage finance company’s new “Featured Perspectives” article on its website.
The serious delinquency rate for all prime mortgages in a recent report by the Mortgage Bankers Association increased three-quarters of a percentage point to 7 percent in the fourth quarter 2009, compared to the previous quarter, Nothaft said.
Freddie Mac’s own data on prime borrowers who are delinquent on conventional conforming loans showed that 58.3 percent cited “unemployment or curtailment of income” as their hardship reason; 16.3 percent gave “excessive obligation” as a reason; and “illness or death in the family” was at 11.2 percent.  
Five percent or fewer gave the following reasons: marital difficulties; inability to sell or rent property; employment transfer or military; property problem or casualty loss; and extreme hardship.
The MBA’s fourth quarter 2009 report said that seriously delinquent loans – those at least 90 days past due — or in foreclosure are at the highest levels recorded in the 40-plus-year history of the survey.
“Not surprisingly, subprime adjustable-rate mortgages had the highest delinquency rates, as these loans dominated subprime origination activity at the height of the boom and carried more high-risk features,” Nothaft said. “More than 40 percent of subprime borrowers with adjustable loans were seriously delinquent at year end – more than eight times the rate for prime borrowers with conventional fixed-rate loans.”
Northaft said Freddie Mac’s single-family, serious delinquency rate was under 4 percent at the end of 2009.
Freddie Mac primarily operates in the prime, conventional mortgage market and purchases mostly 30- and 15-year fixed-rate mortgages.
Freddie and bigger sibling, Fannie Mae, are the two government sponsored enterprises that finance much of the conventional mortgage market. They were virtually taken over by U.S. officials in the fall of 2008. The arrangement gives U.S. taxpayers an 80 percent stake in the two corporations.
 The Obama Administration has yet to come up with an overhaul plan for the mortgage financing system. Fannie and Freddie have sought nearly $127 billion in bailouts.

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