Though mortgage delinquencies have slowed thanks to various moratoria and loan modification programs floating around, delinquency cure rates have nosedived, according to Fitch Ratings.
The cure rate, which refers to delinquent mortgages returning to current payment status, has fallen from an average of 45 percent during 2002-2006 to the current level of 6.6 percent on prime loans.
“Recent stability of loans becoming delinquent do not take into account the drastic decrease in delinquency cure rates experienced in the prime sector since the peak of the housing market,” said Fitch Ratings Managing Director Roelof Slump, in a release.
“While prime has shown the most precipitous decline, rates have dropped in other sectors as well.”
Fitch noted that the deterioration of home prices seems to be the key driver, with many borrowers deeply underwater on their mortgages, increasing the likelihood that they won’t be able to get back on track.
The cure rates seen in earlier years were probably a lot better because home prices were still appreciating, so even the worst borrowers could work something out with their lenders.
The ratings company also warned that up to a quarter of the loans counted as cures are modified loans, which have been shown to re-default at a pretty high clip.
Unsurprisingly, prime borrowers who had higher credit scores and used full documentation at time of loan origination were less likely to be in default, but higher unemployment is also a major concern.
“As income and employment stress has spread, weaker prime borrowers become more likely to become delinquent in their loan payments and are less likely to become current again,” said Slump.