A growing percentage of troubled borrowers in Freddie Mac’s prime loan portfolio said excessive debt was one of the primary reasons they had problems making mortgage payments in 2006.
Unemployment or loss of income was still the most often cited cause of delinquency among Freddie Mac borrowers in 2006, with 36.3 percent reporting such problems. That’s down from 42.8 percent from 2001 to 2005, reflecting recent increases in payroll jobs, Freddie Mac said.
The number of delinquent borrowers citing excessive obligations rose to 13.6 percent in 2006, up from 11.1 percent from 2001 to 2005. Freddie Mac said rising health care costs and personal debt were factors in the increase.
The percentage of Freddie Mac-owned single-family loans that were 90 days or more delinquent or in foreclosure actually declined from .69 percent at the end of 2005 to .53 percent at the end of 2006, where they remain.
Nationally, the rate of serious delinquencies (90 days or more) among prime loans stood at .86 percent at the end of the year, Freddie Mac said, citing data from the Mortgage Bankers Association.
Freddie Mac contrasted the prime loans in its portfolio with the dramatic rise in defaults and foreclosures among subprime loans.
“This analysis underscores the magnitude of difference between Freddie Mac’s 0.53 severe delinquency rate and those in the subprime market,” Freddie Mac Chief Economist Frank Nothaft said.
But Nothaft said the increase in late payments attributed to excessive debt in Freddie Mac’s portfolio is “potentially troubling because it is independent of economic trends and suggests some borrowers are having a harder time handling their financial obligations than in past years.”
Freddie Mac and its sister government-sponsored mortgage repurchaser, Fannie Mae, do not buy subprime loans directly. Last week, Freddie Mac announced it would provide relief to borrowers by purchasing $20 billion in fixed-rate and hybrid adjustable-rate mortgage products it’s introducing as alternatives to subprime loans.
But critics say Fannie and Freddie helped fuel the crisis in subprime lending by investing in securities that are backed by subprime loans.
According to the Office of Federal Housing Enterprise Oversight, at the end of 2006, the GSEs held about $322 billion in AAA tranches of private-label mortgage-backed securities, of which about $170 billion was backed by subprime loans. The GSEs’ total MBS investments stood at $1.05 trillion at the end of the year.
Lawmakers, regulators and the mortgage lending industry have debated whether the dramatic increase in delinquencies and foreclosures among subprime loans was the result of lax lending standards or economic issues such as unemployment.
Lenders, who are fighting attempts to impose tighter restrictions on loan products and underwriting practices, have maintained that while some companies made risky loans, most delinquencies and foreclosures are the result of unexpected financial problems borrowers encounter, such as unemployment and illness.
Freddie Mac’s analysis of the 10 million prime loans in its portfolio revealed that after unemployment, family illness was the second-leading cause of severe delinquency in 2006, with 21.1 percent citing that as a reason for falling behind in their payments by 90 days or more. Family illness was followed by excessive obligation (13.6 percent), marital difficulties (6 percent), death in the family (3.9 percent), property problems or casualty loss (2.8 percent), and extreme hardship (.9 percent).
The analysis excluded seriously delinquent loans in Louisiana and Mississippi in the aftermath of the 2005 hurricanes.
In releasing the latest numbers on loan performance, the MBA did not break down seriously delinquent loans by loan type. The seriously delinquent rate among all loans was 2.21 percent.
The MBA did provide numbers for the overall delinquency rate among subprime and prime loans, which also includes borrowers who have only missed one payment.
The delinquency rate in subprime loans stood at 13.33 percent at the end of 2006, compared with 2.57 percent for prime loans, the MBA said.