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Nonprime Mortgage Conditions in the United States


Technical Appendix

These maps show conditions and density of owner-occupied subprime mortgage loans for the states, counties and zip codes in the United States. The maps are based on data for owner-occupied mortgage loans that have been securitized into a product that is categorized as subprime, based on the grade assigned to the security. The underlying data is updated periodically.

The underlying data do not represent every subprime mortgage, whether in portfolio or in a security, or mortgage securitized in an alt-A pool. We estimate that as of year-end 2007, there were about a total of 7 million subprime loans. The underlying data contained 3.3 million active subprime loans, suggesting a coverage ratio of 47 percent. By definition, all alt-A mortgages are securitized. Our best guess is that 2.4 million loans in this portion of the data cover more than 90 percent of the pools marketed as alt-A. The loan data are drawn from reports by the Board of Governors of the Federal Reserve System based on data from FirstAmerican CoreLogic, LoanPerformance Data. Data on the number of housing units are drawn from the U.S. Census 2000.

Alt-A Mortgages:  Loans marketed in alt-A securities are typically higher-balance loans made to borrowers who might have past credit problems—but not severe enough to drop them into subprime territory—or who, for some reason (such as a desire not to document income) chose not to obtain a prime mortgage. In addition, many loans with nontraditional amortization schedules such as interest only or option adjustable rate mortgages are sold into securities marked as alt-A. 

Although the term “alt-A” applies technically only to securities, not mortgages, it has become common practice to refer to near-prime or non-traditional mortgages as “alt-A” loans. The 2.4 million alt-A loans in the data contained approximately 1.7 million loans for owner-occupied units with an average outstanding loan balance around $300,000 at the end of 2007.

ARMs stands for adjustable rate mortgages and means that the loans have a variable rate of interest that will be reset periodically, in contrast to loans with interest rates fixed to maturity. All ARMs in this spreadsheet refer to owner-occupied mortgages. Historically, ARMs have a higher likelihood of being delinquent or foreclosed upon than fixed rate loans. This is true in the prime, alt-A, and subprime markets.

ARMs Resetting (adjustable or variable rate mortgages resetting) refers to loans (including “2/28s” and 3/27s”) that are about to undergo their first rate reset. All ARMs in this spreadsheet refer to owner-occupied mortgages. The fully indexed rate on a subprime ARM is typically the sum of the six-month LIBOR (London Interbank Offer Rate) and the margin, which is typically about 6 percent for subprime loans and half that for alt-A loans. At their first rate reset, rates on subprime ARMs can move up sharply, depending on the current level of the six-month LIBOR. 

Payments for an alt-A variable rate loan often face much smaller increases at first reset because they are typically indexed to a different and less volatile interest rate, usually the 1-year LIBOR, and most have a lower margin.

Average Combined LTV of Cash-Out refers to the average combined Loan to Value ratio of all subprime loans incurred for loans originating due to the refinancing of a housing unit. The average combined LTVs for loans originating due to the purchase of a housing unit and other purposes are excluded from the calculations. See Cash-Out Refinances and LTV.

Average Combined LTV at Origination refers to the average combined Loan to Value ratio of all subprime loans incurred at the acquisition of an owner occupied housing unit. See LTV.

Average Combined LTV of Purchases refers to the average combined Loan to Value ratio of all subprime loans incurred for loans originating due to the purchase of a housing unit. The average combined LTVs for loans originating for cash-out refinancing and other purposes are excluded from the calculations. See Purchases and LTV.

Average Current Balance of Cash-Out refers to the average current balance of all loans incurred for loans originating due to the cash-out refinancing of a housing unit beyond and above the payoff of the existing loans held in lien on the property and the loan fees, costs associated with the loan, taxes, insurance, tax reserves and insurance reserves. The current average balance for loans originating due to the purchase of a housing unit and other purposes is excluded from the calculations. See Cash-Out Refinances.

Average Current Balance of Purchases refers to the average current balance of all loans incurred for loans originating due to the purchase of a housing unit. The current average balance for loans originating for cash-out refinancing and other purposes is excluded from the calculations. See Purchases.

Average Current Interest Rate of Cash-Out refers to the average current interest rate of all loans incurred for loans originating due to cash-out refinancing of a housing unit. The interest rates for loans originating due to the purchase of a housing unit and other purposes are excluded from the calculations. See Cash-Out Refinances.

Average Current Interest Rate of Purchases refers to the average current interest rate of all loans incurred for loans originating due to the purchase of a housing unit. The interest rates for loans originating for cash-out refinancing and other purposes are excluded from the calculations.

Average FICO of Cash-Out refers to the average FICO of all loans incurred for loans originating due to the cash-out refinancing of a housing unit. The average FICO for loans originating due to the purchase of a housing unit and other purposes is excluded from the calculations. See Cash-Out Refinances and FICO.

Average FICO of Purchases refers to the average FICO of all loans incurred for loans originating due to the purchase of a housing unit.  The average FICO for loans originating for cash-out refinancing and other purposes is excluded from the calculations. See Purchases and FICO

Average Initial Interest Rate: The initial interest rate is the interest rate at the origination of the loan.  Many nonprime loans have interest rates that adjust after the first or second year of the loan.

Average Margin: Once it begins to reset, the interest rate on an adjustable rate loan is the sum of a reference interest rate and a specified increment above the reference interest rate. The specified increment is called the “margin,” and is typically about 6 percent for subprime loans and half that for alt-A loans. See ARMs Resetting.

Cash-Out Refinances means that the borrower acquired a nonprime loan as a result of refinancing an existing loan, and in the process of refinancing, the borrower took out cash not needed to meet the underwriting requirements.

Current Payment: Loans where the borrower has made all payments on time or, if not, has made up any payments missed in the past.

FICO is a credit bureau risk score. The higher the FICO score, the lower the likelihood of delinquency or default for a given loan. Also, everything else being equal, the lower the FICO score, the higher will be the cost of borrowing/interest rate. 

For more information about the relationship between FICO score and mortgage interest rate see the external link on the right-hand side of this page. The FICO scores here are the scores at the time the loans were originated. The average FICO score at origination for owner-occupied subprime loans in the data was just under 620 compared to slightly more than 700 for alt-A loans. Typically a FICO score of 660 or above is required to obtain prime financing.

Foreclosure means that the lender has initiated the foreclosure process but has not completed it. In Foreclosure/1000 Housing Units means the number of owner-occupied loans per 1000 housing units where the lender has initiated the foreclosure process but has not completed it. The length of the foreclosure process varies by state, so two otherwise similar areas in different states could record different foreclosure densities if the foreclosure process takes longer in one state than the other. Thus, this field measures the stock of loans in foreclosure at a particular time, not the rate of completed foreclosures.

In REO, real estate owned, indicates that the lender has taken legal title to the property, through foreclosure or transference of title from the borrower. Number of Loans in REO per 1000 Housing Units measures the density of loans in REO in the area. Percent in REO measures the share in REO.

The Mortgage Bankers Association® maintains a list of property preservation contacts for numerous large mortgage servicers from around the country. See the external link on the right-hand side of this page to see this list. While the list is far from exhaustive, it provides a good starting point for locating appropriate contacts who may control REO properties around the county.

Interest Only refers to loans in which only interest payments are required for a specified period of time and no amortization occurs during this period.

Loans/1000 Housing Units means the number of owner-occupied loans per 1000 housing units in the area. This measures the density of loans in the area. As noted above, we estimate that these data cover 47 percent of subprime loans. It is reasonable to assume that the covered loans are representative of the entire subprime market but we can not say for sure how accurate that assumption is.

LTV stands for the combined Loan to Value and is the ratio of the loan amount to the value of the property at origination. Some properties have multiple liens at origination because a second or “piggyback” loan was also executed. Our data capture only the information reported by the first lender. If the same lender originated and securitized the second lien, it is included in our LTV measure. Home equity lines of credit, HELOCS, are not captured in our LTV ratios. The Median LTV includes the second liens as noted above and is the value at which half the LTVs are higher and half the LTVs are lower.

Loans with High LTV at Origination refers to the number of loans with a high loan to value ratio at the time the mortgage was originated.

Median Combined LTV at Origination refers to the median combined Loan to Value ratio of all subprime loans incurred for loans originating due to the purchase of a housing unit. The median value refers to the point at which 50 percent of the combined LTV ratios are higher and 50 percent of the ratios are lower. The combined LTVs for loans originating for cash-out refinancing and other purposes are excluded from the calculations. See Purchases and LTV.

Negative Amortization: If the current monthly payment for a loan is not sufficient to cover the scheduled interest payment, unpaid interest is added to the outstanding loan balance. Thus, for some loans, the outstanding loan balance increases even as the monthly payments are made on a timely basis. Loans with this feature are called negative amortization loans.

90+ Days Overdue means that the loan payment is 90 or more days overdue but the loan is not in foreclosure or REO. The variable Percent of Owner-occupied Loans 90+ Days Overdue refers to the percent of loans that are 90 or more days overdue. Loans are either current, 30 to 59 days overdue, 60-89 days overdue, 90 or more days overdue, in foreclosure or in REO. See In REO.

Number Already Reset refers to the number of ARM loans which have already had their first interest rate reset. See ARMs resetting.

Owner-occupied and Non-owner Occupied Loans: This information is reported by the borrower at the time of origination. Number of Owner-occupied Loans per 1000 housing units in an area is a measure of density. Slightly less than ten percent of all subprime loans were listed as non-owner occupied as of December 2007 meaning that they were purchased as a second home, an investment property or are not occupied by the borrower for some other reason. The balance is owner–occupied.

Percent ARMs (adjustable rate mortgages) means the share of owner-occupied loans that have a variable rate of interest that will be reset periodically in contrast to loans with interest rates fixed to maturity. ARMs are given special consideration because they traditionally have a higher likelihood of being delinquent or foreclosed upon than fixed rate loans. This is true in the prime, alt-A and subprime markets.

Percent ARMs Resetting in 12 Mos. means the share of adjustable rate mortgages for which the rate of interest is scheduled to undergo its first rate reset within the next 12 months. Many subprime ARMs, especially so-called “2/28s” and "3/27s" carried initial rates below their fully indexed rate. The fully indexed rate on a subprime ARM is typically the six-month LIBOR (London Interbank Offer Rate) plus the margin, typically about 6 percent for subprime loans. At their first rate reset, rates on subprime ARMs can move up sharply, depending on the current level of the six-month LIBOR.

Percent Current shows the percentage of owner-occupied loans for which the borrower’s payments are up to date. Loans in this category may have at some time been delinquent but as of the end of our period they are caught up. While slightly more than 60 percent of owner-occupied subprime loans were current in December 2007, only 50 percent of these loans missed a payment in 2007.

Percent in Foreclosure means the share of loans for which the lender has initiated the foreclosure process but has not completed it. The length of the foreclosure process varies by state, so two otherwise equal areas in different states could record different foreclosure shares if the foreclosure process takes longer in one state than the other. Thus, this field measures the stock of loans in foreclosure at a particular time, not the rate of completed foreclosures.

Percent Loans Used for Other Purchases is the percent of loans which were not originated for cash-out refinancing or purchase.

Percent Loans with Late Payment in last 12 Mos. means the share of owner-occupied loans for which at least one payment has been late over the past 12 months. Difficulties in paying on time often precede more serious defaults.

Percent Loans with Low FICO and High LTV are here defined as the share of owner-occupied loans with both FICO scores below 620 and LTVs above 90 percent. Loans with these two attributes together are commonly considered among the riskiest of all loans. FICO is a credit bureau risk score. The higher the FICO score, the lower the likelihood of delinquency or default for a given loan. Also, everything else being equal, the lower the FICO score, the higher will be the cost of borrowing/interest rate.

Percent Loans with Low or No Documentation refers to the percentage of owner-occupied loans for which the borrower provided little or no verification of income and assets in order to receive the mortgage.

Percent Loans with High LTV and Low FICO are here defined as the share of loans with both FICO scores below 620 and LTVs above 90 percent. Loans with these two attributes together are commonly considered among the riskiest of all loans. 

For more information about the relationship between FICO score and mortgage interest rate see the external link on the right-hand side of this page. The FICO scores we note are the scores at the time the loans were originated. The average FICO score at origination for owner-occupied subprime loans in the data was just under 620 compared with slightly more than 700 for alt-A loans.

Percent 90+ Days Delinquent means that the loan payment is 90 or more days overdue but the loan is not in foreclosure or REO. The variable here is the share of owner-occupied subprime loans that are 90 or more days overdue. Loans are either current, 30 to 89 days overdue, 90 or more days overdue, in foreclosure or in REO.

Prepayment Penalty: The mortgage was written with a clause requiring the borrower to pay a penalty if the loan is paid off prematurely. The definition of “prematurely” can vary from one to several years. Many loans carry the penalty for just the first year of the mortgage. The Number with a Prepayment Penalty in Force is the number of loans that still have a prepayment penalty in effect.

Purchases refers to loans originating due to the purchase of a property. Loans may also originate due to Cash-Out Refinancing (see Cash-Out Refinancing) and other unspecified reasons.

REOs per 1000 Housing Units means the number of real estate owned properties per 1000 housing units. REO status indicates that the lender has taken legal title to the property, through foreclosure or transference of title from the borrower.

Second Lien at Origination: Some properties have multiple liens at origination because a second or “piggyback” loan was also executed simultaneously with the first loan. Our data capture second liens only if they are originated and securitized by the holder of the first lien.

Subprime Mortgages (Loans): Compared with prime mortgages, subprime mortgages are typically made to borrowers with blemished credit history or who provide only limited documentation of their income or assets. Originations of subprime mortgages fell sharply in the second half of 2007 and have been extremely light so far in 2008. Of the 3.3 million active subprime loans in the data at the end of 2007, there were some 3 million loans for owner-occupied units with an average outstanding loan balance around $180,000.