Smart Borrower Blog

First and Second Mortgage Defaults Inch Up in August


Sep 16th, 2015 @ 6:45 PM by Amber Nelson


Primary and secondary mortgages saw an increase in defaults in August, according to the S&P/Experian Consumer Credit Default Indices.

The default on the first lien mortgage rose to 0.84 percent, up from 0.80 percent in July. Compared with the previous year, defaults were actually down however from 0.91 percent. Second lien mortgage defaults increased to a rate of 0.57 percent, up from 0.55 percent the month before and up from 0.51 percent in August 2014.

Four out of the top five major cities experienced default increases in August. New York led the pack with a default rate of 1.04 percent, up from 0.92 percent in July. Dallas’ default rate jumped to 0.71 percent from 0.64 percent while Chicago’s rate rose for the straight month, up to 1.21 percent from 1.15 in July. Miami’s default rate inched up to 1.46 percent, from 1.45 percent. Only Los Angeles had a default rate decline, with its rate falling to 0.76 percent, down from 0.89 percent.

The statistical significance of the increases may be minimal because the defaults are generally improving over the long term. “The ongoing improvement in the consumer economy is reflected in consumer credit default rates,” says David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “In recent months, we have seen substantial job growth, increases in consumer spending, and a rise in consumer credit outstanding. Despite continued weak wage growth, consumer credit default rates remain in a narrow range at low pre-financial crisis levels.”

These default rates may continue to grow if mortgage interest rates rise dramatically in the coming months, but with the current state of the economy, there is little chance of a major rate increase.

“With the Federal Reserve policy meeting on Wednesday and Thursday this week, analysts are debating the possible impact of an interest rate increase,” Blitzer said. “A quarter-point increase in the Fed funds rate will not affect fixed rate mortgage loans or auto financing. Some small increases in interest rates on bank cards and similar lending may occur in the months following Fed action. Adjustable rate mortgages tied to market rates will rise as mortgage loans reach dates when rates reset. Barring a pattern of rapid sustained interest rate increases from the Fed – which no one foresees – the near-term impact on consumer defaults will be very small.”

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.

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