Cumulative defaults for residential mortgages in the US showed signs of stabilising in Q3 2011, according to a report by Standard & Poor’s (S&P).
It said that cumulative defaults for US home loans are levelling, an improvement that started at the beginning of the year.
“Much of the improved performance has been due to reduced active defaults, particularly among 2006 and 2007 loans,” said Diane Westerback, Head of Structured Finance Global Surveillance Analytics.
“We believe moderating first default and redefault rates are propelling this reduction, and this reduction is likely the primary factor causing cumulative defaults to flatten.”
However, loss severities are increasing despite improving default trends.
S&P said the loss severity rate for closed defaults reached 64 percent at end-Q3, the highest level in eight years. The firm noted that recent increases could be attributed to the rise in loan defaults that have a mark-to-market loan-to-value (LTV) ratio of above 100 percent, which means that the debt is higher than the value of the collateral property.
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