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Defaults on Amortizing ARMs Outpace 'Exotic' Problems.(adjustable-rate mortgages )
DENVER -- Early payment delinquency data compiled by McDash Analytics here show that the percentage of adjustable-rate mortgages that are going delinquent within the first six months of origination has risen sharply during the past 21 months, but don't blame the growing volume of "exotic" loan products for the problem.
In fact, early delinquencies on amortizing ARMs have risen much more sharply than on interest-only ARMs. And IO ARM delinquency rates are well below those of non-IO ARMs.
McDash executives Steve Berg and Ted Jadlos say a number of factors may be contributing to the trend of higher early missed payments on non-IO ARMs, noting that the average weighted FICO score on IO loans was about 40 points higher than on non-IO loans. They also note that since the study only looked at the first six months of seasoning, the IO borrows have not yet seen resets to reflect fully amortizing payments.
Moreover, they note that the deterioration in ARM performance - especially the non-IO component - has been occurring at a level of constant FICO score and LTV, suggesting that other aspects of underwriting may be getting tweaked to approve unsteady borrowers. The sheer number of early payment delinquency is in some cases stunning, especially since the economy is not in recession.
Among non-IO ARMs with FICO scores below 620, 12.4% of loans less than six months old were delinquent as of September, or about one in every eight borrowers. ...
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