Katrina Default Rates on B&C Loans May Have Peaked.

Washington -- Default rates in areas of Louisiana and Mississippi hit by Hurricanes Katrina and Rita appear to have crested in December, according to a Friedman Billings Ramsay report on the performance of non-agency mortgage loans.

The FBR monthly report on loans that are not securitized by Fannie Mae and Freddie Mac shows that defaults (90 days or more past due) have declined in January and February in the 12 metropolitan statistical areas (including Beaumont, Texas) that were hit hardest by the hurricanes last fall.

"We now know the declines in January from the prior month were a turning point in the credit performance of non-agency loans in the 12 MSAs," said FBR managing director Michael Youngblood.

The default rate on prime loans fell to 9.6% in February from 10.5% in January, while defaults on alt-A loans declined to 17.6% from 19.8% and defaults on subprime loans declined to 27.6% from 29.3%

The FBR researcher attributes the declines to payments on federal flood insurance and private hazard insurance claims. In mid-March, the Federal Emergency Management Agency said it had paid out nearly 90% of all flood insurance claims totaling $11.3 billion related to Hurricanes Katrina and Rita.

"As more homeowners receive federal and private insurance payments, default rates on non-agency loans should recede," he said.

Homeowners also are benefiting from federal disaster relief and the availability of Small Business Administration loans. If insurance ...