Default rates among subprime loans rose 56.5% - or 187 of the 331 metropolitan statistical areas in October 2005 from the year-ago period, according to Friedman Billings Ramsey. On average, however, the default rate for subprime loans fell to 6.16% from 6.38%.
FBR is forecasting subprime loan default rates in 311 MSAs to rise to 6.68% this October, up from the 6.16% delinquency rate reached in October of 2005. "We attribute the increase to the ineveitable surge in default rates in the 10 MSAs affected by Hurricane Katrina, to continued weakness in the 56 MSAs, and to the natural aging of the stock of subprime loans."
The percentage of securitized loans considered to be subprime that were in foreclosure in the month of October rose to 2.27% from 2.25% in September, while the portion of loans that were 90-days or more delinquent rose to 3.15% from 2.87%. The portion of loans reported as 60-days delinquent rose to 2.76% from 2.49%, while 30-day delinquencies rose to 7.07% from 6.99%, according to FBR.
Improvements in ability to make payments among subprime borrowers overall year-over-year, however, was attributed by FBR to better labor market conditions. Payroll employment grew by 1.92% in October from the previous year, while the household unemployment rate fell by 8.8% to 4.7%. Similar to trends in delinquency rates, employment did not improve in every MSA - leaving a pocket of MSAs that continue to experience relatively high delinquency rates.
"It is evident that a slowly expanding majority of MSAs is experiencing better labor market conditions, while a minority, due to chronically weak local economic activity, is not," FBR researchers wrote last week.
FBR identified 56 MSAs in 16 states that are experiencing consistently high rates of default, but, the population of those areas represents 11% of the U.S. population, or 31.1 million people. Within this MSA, subprime loans in October experienced a 13.82% default rate, compared with 2.54% for alt-A loans and 0.56% default rate for prime loans. The MSA with the highest subprime loan default rate as of October was Cleveland, Ohio, which experienced a 20.02% rate of default. Not far after Cleveland for subprime loan defaults was Charleston, S.C., which experienced a 18.38% of default in October. The worst prime borrowers among the bunch resided in Hamilton, Ohio, where 1.65% of prime loans were delinquent in October.
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