RESTON, Go., November 10, 2022 /PRNewswire/ — Gopal “Sharath” Sharathchandra, senior vice president of financial solutions at Ventera, has released a new white paper in his housing market series. In this white paper, titled “How Far Will Mortgage Defaults Go?”
According to its findings, housing prices are likely to decline from 2007 in a larger population with a larger geographic footprint. This decline is likely to be of a magnitude comparable to that recorded in only a few regions in 2007. Unlike in 2007, when it was high property prices that made housing unaffordable, today it is both high house prices and recently skyrocketing mortgage rates. at the highest level for 20 years. The national nature of mortgage rates has contributed to a geographically broader increase in house prices and is now likely to drive house prices down in the same way.
Default data after 2007 does not support the argument of a number of economists that even if house prices were to fall sharply, defaults are unlikely to resemble the experience after 2007 due to better underwriting and better financial terms for borrowers today. On the contrary, the data indicates that the main driver of mortgage defaults is falling house prices and the resulting negative equity and that this far outweighs the contribution of borrowers and underwriting characteristics. such as FICO scores or subprime status.
Post-2007 credit loss data from Fannie Mae and Freddie Mac shows that even the low-risk portion of the prime mortgage portfolio contributed 40% of total credit losses, with the overall prime portfolio contributing to almost 70%. Today’s prime portfolio is arguably more risky, due to a higher loan-to-value ratio, and has more vulnerable borrowers than the 2007 prime portfolio, which increases the risk of even greater losses today if a fall in property prices comparable to that of 2007 were to occur.
Will mortgage default rates be similar to what they reached in 2007? Will there be a recession similar to what we have seen? Sharath forecasts what you can expect and how government and the financial services industry can prepare for these expected results. To read the full white paper, visit www.ventera.com/insights.
About Ventera Corp.
Ventera is a consulting firm that solves complex challenges for business and government. Through user-centered Agile development, we create products and solutions that are smart and results-driven. Situated at Virginia and serving businesses and federal agencies focused on financial services, healthcare and communications, we pride ourselves on forging the essential relationships between people, technology and industry that drive innovation and partnership. To learn more, visit www.ventera.com.
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