Have US Mortgage Defaults Bottomed Out?

For all those securitization watchers that have traditionally looked to the US mortgage market as a bellweather for all structured products, perhaps an analysis coming out of California this week will be viewed as good news.

As the largest among the many asset classes in the securitization market, US residential mortgage-backed securities (RMBS) and the residential mortgages that make-up the collateral pools for thousands of GSE and private MBS structures have always been viewed as the foundation of the structured finance industry; and within the asset class, the California housing market has been viewed as the most important and therefore the most analyzed market in the US.

This week, DataQuick, a San Diego based research firm, published a report which among other nuggets detailed trends for new defaults in the California residential market.  What their research apparently tells us is that, not since the Second Quarter of 2007 has the pace of new mortgage defaults been as low as it was in the First Quarter of 2011.

New California Mortgage Default Notices*

  • Q2 – 2007 : 53,493
  • Q1 – 2009: 135,431
  • Q1 – 2011: 68,239

At minimum, these findings suggest a signficant turning of the corner in the largest US market.  At maximum, the statistics might just pose the question that if California seems to have turned a corner, can the rest of the US market be far behind?  If you subscribe to the theory that Q2 2007 may have been the last “normal” quarter for the mortgage market in the past 5 years, then the drop in new default filings to a level which approaches that last normal period must tell us something about the re-stabilization of the market.

Of course, these days all industry followers can be accused of sifting through the ashes, searching for any good news.  While that is undoubtedly accurate, we have seen bottoms (and recoveries) before.  In the past, it has been statistics such as these that have signaled the turn. 

*(Source: DataQuick)

About markferraris
Managing Principal Orchard Street Partners LLC

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