South Florida “Subprime” Mortgage Market – the area has much at stake in the furor over the quality of its so-called “subprime” mortgages.
How do South Florida’s numbers compare to the national average and other areas of the country? The latest twist – were half of the subprime borrowers ripped off? Did they actually qualify for “A” paper?
As of today, the March, 2007 Loan Performance report has not yet been published, but I will update articles as new data becomes available.
According to a March 20, 2007 Sun-Sentinel newspaper article, www.sun-sentinel.com , and statistics based on a December, 2006 study done by First American LoanPerformance, a San-Francisco-based mortgage data company, subprime lending has a much bigger share of the South Florida market than the nationwide average in 2 of the 3 major counties. South Florida’s troubled loans, though, aren’t as big an issue. The Sun-Sentinel article only mentioned the statistics in the next 2 paragraphs. The balance of the statistics come from the Loan Performance Study.
The national average of subprime loans as a percentage of total loans at the end of 2006 is 14.7%. In Palm Beach County, 13.3% of its mortgages are “subprime”, while Broward has 18.4% and Miami-Dade has the biggest share of subprime mortgages in the region, at 23%.
South Florida and the state of Florida ranked equal to or better than the national average in several categories. The national average for loans where payments were 60 days late is 11.8%. In Palm Beach County, 9.3% were 60 days late or more. In Broward, 8.9% of the loans were late, while Miami-Dade’s rate was 8.3%.
Loans classified as Seriously Delinquent are 90 days or more late and in Foreclosure. The national average for 90 day subprime delinquencies is 7.57%. The range for Florida is 5.24 – 7.10%, which is lower than the national average. Subprime BC paper also falls within national averages. Florida’s range is from 6.06 – 8.92%, whereas the national average is 8.49%. The study also includes categories for prime mortgages, home equity lines and jumbo paper. Florida’s prime mortgage delinquencies of .48-.62% range also ranked below the national average of .69%.
The study also has a category for a 3-Month CPR rate, which is defined as the conditional prepayment rate (CPR) estimating principal that will prepay over the next 12 months based on actual principal prepayments for the preceding three month period. Florida’s range ranked equal to the national average or better in all 3 categories mentioned above.
Were Half the Subprime Borrowers Ripped Off? Did they actually qualify for “A” paper?
Lou Barnes of Boulder West Financial Services, in his May 4th, 2007 Mortgage Credit News, refers to observations made by Lewis Ranieri in a presentation to the Milken Institute conference the week of April 23rd, 2007. Lewis Ranieri, the 1983 co-inventor of the modern, mortgage-backed securities market, asserted that, of the subprime originations late 2005 through 2006, 50% of the subprime borrowers qualified for loans from FHA, Freddie Mac, or Fannie Mae on much more favorable terms, at least an Alt-A loan, perhaps even prime.
These observations were also based on statistics from the LoanPerformance report. Please see related Blog articles by Calculated Risk, referencing Mr. Ranieri’s presentation transcripts, Calculated Risk April 28, 2007, and Naked Capitalism for report graphs and comments – Naked Capitalism, April 30, 2007 – Were half subprime borrowers ripped off? and Naked Capitalism, April 29, 2007 – Lewis Ranieri on Subprime Mess.
The articles also quote Fannie Mae CEO Daniel Mudd’s testimony before Congress, stating that “they are getting 15,000 applications for subprime refinancing coming into their system per month, – and 80% were getting a “yes”. Altogether, they estimate that about 1.5 million homeowners who face resetting ARMs and potential payment shock this year and next could be eligible for Fannie Mae’s loan options.”
As Mr. Barnes states, “Contemptible behavior by desperate salesmen has concealed borrowers in better shape than feared, and withdrawal of trash credit is unlikely to collapse housing.” This news further supports his centerline position regarding the housing / mortgage meltdown, that “housing will not resolve for years, but is a drag, not a killer.” Please refer to some of his other articles for further information.
Many forecasts predict that South Florida will be hit hard by foreclosures because the area experienced such rapid price appreciation, and with the high inventory, prices have come down and the inventory is moving. These latter articles do not refer to any state or area breakdown, but based on South Florida’s and Florida’s above percentages, future updated statistics may prove the result to be lower than originally anticipated, at least those based on the subprime market.