One in Seven US Borrowers Defaulting on Loans

Fri, 20 Nov 2009

New figures from the Mortgage Bankers Association (MBA) have revealed that more than one in seven US borrowers are failing to keep up with repayments on their mortgages . At 14.41 per cent, the percentage of borrowers defaulting on loans during the third quarter represents the highest level since records began in 1972. It is an increase of more than 1 per cent on the second quarter.

The rise in unemployment was cited as a major reason for the increase, with an estimated 5.5 million people joining the unemployed list in America in the past year. Indeed, US unemployment surpassed 10 per cent in October. Consequently, the number of loans with payments late by 90 days or more has increased by 2 million, and the proportion of loans subjected to foreclosure proceedings has risen from 1.07 per cent to 1.42 per cent. Traditional prime fixed rate loans accounted for one third of such loans during the third quarter.

Chief Economist at the MBA, Jay Brinkmann, said he expected the figures to get worse before they get better. The cost of defaulting borrowers to banks means they will be wary about lending credit too readily, while interest rates will remain high in order to preserve banks profit margins.
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