Home price problems, continued high unemployment numbers and loan seasoning are behind the slowing pace of the improvement in the current to delinquent roll rates for nonagency mortgage loans in the past few months, according to the analysts at Barclays Capital.
In 2010 and the first part of this year, the current to delinquent roll rates across most types of nonconforming mortgages had improved by 25% or more on a year-over-year basis.
But in June and July that improvement had slowed into the low and mid-teens range; for jumbo loans the current to delinquent roll rates actually increased by 2% in July.
The Barclays analysts said that while it might be reasonable to assume it is a change in the mix of borrowers—with fewer always current and more self cure and modified borrowers in the pool—as the cause, they added it is not enough to explain the lower improvement pace in recent months.
Seasoning has a particular impact when it comes to cured and modified loans. The analysts note that self-curing loans have a high chance of becoming delinquent once again because there was stress in the past and the borrower's payment is unchanged. However, after two years of payments, the performance of these loans is similar to always-current borrowers.
As for borrowers with modified loans, they are better payers than the self-cure borrowers because their payments are significant lower. But, the analysts continue, "the redefault rate increases in the first six months as the initial positive payment shock wears off." Eventually, the performance of these loans will improve and nearly equal the always current and cured loans.