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WASHINGTON, DC-Recent data released by the Mortgage Bankers Association confirms what many had suspected about borrower defaults: properties that are not occupied by the owners--that is, properties purchased for investment purposes--are defaulting faster than those occupied by the owners. MBA found that this pattern is a major driver of defaults in the four states with the fastest rising rates of delinquent loans: Nevada, Florida, Arizona and California.
As of June 30, 32% of prime mortgage defaults in Nevada were on non-owner occupied properties, along with 24% of subprime loans. In Florida, the non-owner occupied shares were 25% for prime loans and 14% for subprime loans. In Arizona, 26% of prime loan defaults were non-owner occupied and 18% of subprime loans. In California, the rate was 21% of prime defaults and 15% of subprime. By contrast, non-owner occupied homes nationwide accounted for only 13% of prime defaults and 11% of subprime defaults.
"Defaults are on the rise in most parts of the country, but it should be recognized that it is not always the case of a homeowner losing his or her home but is often the case of an investor gambling on a continued increase in home values and losing that gamble," says Doug Duncan, MBA chief economist and SVP of research and business development, in a statement.
Duncan notes that California, Nevada, Arizona and Florida were among the states with the fastest home price appreciation over the last five years--appreciation that attracted both speculators and home builders. It was "a volatile combination that led to an over-supply of homes that was beyond the capacity of the local populations to support. When this over-supply became apparent and prices began to fall, many of these investors simply walked away from their mortgages," he concludes.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
