The Prime Loan (Under)Performance Problem

OCC and OTS Release Mortgage Metrics Report for Fourth Quarter 2008 (hat tip Calculated Risk):

The Office of the Comptroller of the Currency and the Office of Thrift Supervision today jointly released their quarterly report on first lien mortgage performance for the fourth quarter of 2008. The report covers mortgages serviced by nine large banks and four thrifts, constituting approximately two-thirds of all outstanding mortgages in the United States.

Of these loans, the chart below details the performance of those loans labeled "seriously delinquent mortgages":

Seriously delinquent mortgages, defined as mortgages that are 60 or more days delinquent plus loans to bankrupt borrowers who are 30 or more days delinquent, ncreased to 4.60 percent of the total portfolio in the fourth quarter from 3.54 percent in the third quarter.

Seriously delinquent mortgages increased across all loan categories during the fourth quarter, continuing the trend reported in prior quarters. Serious delinquencies were highest for subprime loans at 16.40 percent and lowest for prime loans at 2.40 percent, reflecting the higher overall risk profile of subprime loans. Prime loans experienced a significant increase in serious delinquencies, increasing from 1.67 percent in the third quarter to 2.40 percent in the fourth quarter—an increase of nearly 44 percent.

While Subprime and Alt-A loans are dramatically underpeforming Prime loans, the shear volume of Prime loans (there are more of them) has resulted in the number of delinquent Prime loans to outnumber Subprime loans.