Portland Mortgage Broker

The default rate on securitized subprime loans hit 25.2% in December, up 185 bp from that of the previous month. Additionally, defaults on alternative-A loans are also surging, according to a report by Friedman Billings Ramsey Investment Management.

Until recently, subprime mortgage loans made up about 8% of all mortgages originated. That means the national default rate based on subprime mortgages alone is around 2%. The Office of Federal Housing Enterprise Oversight (OFHEO) has said in the past that as long as the default rate (defined as more than 90 days delinquent) stays at 1% or less, the market is balanced. So we can quickly see that the subprime fallout, though significant, is responsible for only 1% more mortgage delinquencies than the OFHEO is comfortable with. The bigger problem is that so-called Alt-A loans, or those loans to borrowers with only slight blemishes, are starting to fall apart too. It all ties into my post from a couple of weeks ago - which came first, the chicken, the egg, or the nest?

America is coming home to roost in the messy mortgage nest it has created for itself by allowing (and even encouraging) fraudulent transactions over the last 7 years. Fortunately, Portland is escaping mostly intact thus far, though we did experience our first price decline since 1987 (however slight at .24%). My personal conviction is that our local economy will remain strong enough to pull us through this firestorm largely unscathed.