New 'Buckets' of Reasons for Borrowers Who Default.(Jeffrey Taylor of Digital Risk)

Orlando, FL -- Three main reasons for default have emerged from an effort by a loss mitigation firm headquartered here to help Wall Street get a fix on pools of nonperforming mortgages.

The "majority of issues with borrowers fall into three major baskets, but they are new baskets we've never seen before," said Jeffrey Taylor, a partner in Digital Risk, which has been hired by several of the nation's largest securitization firms to assess the depth of their problems with delinquent and nonperforming assets, particularly subprime loans.

Until the recent debacle in the nonprime sector, it was commonly accepted that the major reasons for default by borrowers were divorce, unemployment and major illness.

But based on its investigation into what sparked the current spate of problem loans, Digital Risk says those factors now take a backseat to overextended investors, declining values and out-and-out fraud.

Some investors are so "stretched financially" that they are "underwater" and simply unable to make their payments, Mr. Taylor said.

In a number of other instances, housing values have fallen by 10% or more between the time the underlying property was appraised for the mortgage and the time borrowers stopped making their monthly payments. And the reason for the decline is not attributable solely to a declining market.

"Our investigation reaffirms what everybody has been saying, and that's there are an awful lot of inflated appraisals out there," Mr. Taylor said.