Current changes in the U.S. delinquency rate.

The more credit worthy “prime” borrowers are soon to surpass subprime borrowers in the mortgage delinquency rate throughout the U.S. nation. Because prime borrowers make up 80% of the U.S. bank exposure for credit cards and mortgages, the tables are steadily turning. The reason that the subprime borrowers were to blame for this economic crisis, to begin with, had to do with them not having as many financial levers to pull to stay current with their monthly credit obligations. This in turn resulted in a quicker loan default. High interest rates and adjusting ARMs soon made these mortgages un-affordable.

The prime borrowers, on the other hand, were just a little more savvy with their monies having put away reserves and taking good care of their credit. They had access to the best rates and loan programs making it easier for them to afford their monthly obligations. With the economic situation worsening these prime borrowers are left with less of a security blanket to rely on. These “prime” borrowers have lost their jobs over the past few months and the reserves they had once placed into savings accounts are slowly being depleted. With home values coming down substantially they no longer have the options of living off of their home equity lines of credit as needed.

The total mortgage delinquency rate has increased to 9.24% in the second quarter, according to the Mortgage Bankers Association, which has set a new record. The overall total of delinquent prime loans is 6.24% which is far less than the 25.4% of delinquent subprime loans but since prime loans make up 75% of the big banks portfolios the total number of prime delinquencies, continuing this trend, will surpass the subprime defaults.

On the lighter note, the housing marketing is showing a steady increase in number of buyers but this flood of new defaulted mortgages is going to keep the market saturated with short sale listings, and bank owned homes. We are not out of the woods yet, and it will still take some time for this market to stabilize.

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