A deterioration in credit scores has pushed the ranks of subprime borrowers up by a third in a new report. But the same report found that borrowers with higher credit scores are more likely to stiff their lenders given a negative equity position.
Borrowers considered “super-prime” have fallen by 10 percent since the third-quarter 2008, according to two new Experian-Oliver Wyman Market Intelligence Reports. The decline was based on changes in borrowers’ VantageScore.
Offsetting the decline in super-prime share was an increase in subprime borrowers. The report indicated that 33 percent more borrowers are now considered subprime than were three years ago.
“While loan originations increased by 38 percent from Q4 2008 to Q1 2009, driven primarily by a mortgage refinancing wave, the increase was limited to the most creditworthy consumers,” Experian executive Charles Chung said in the statement. “In fact, originations actually declined for subprime and deep subprime consumers, a reflection of lenders’ continued reduced appetite for credit risk.”
Another finding was that super-prime and prime borrowers were 50 percent more likely to strategically default because of negative equity even though they could afford the payment.
But a segment of the strategic defaulters, dubbed “cash-flow managers,” were identified as favorable candidates for loan modifications. Borrowers in this group make occasional payments — indicating a desire to cure delinquency.
“While 60 percent of strategic defaulters are charged-off within six months after serious delinquency, one-third of cash-flow managers cure on their mortgage within six months after serious delinquency and another third remain less than 90 days past due,” Oliver Wyman partner Piyush Tantia said in the report.
The report indicated that roll rates remained elevated on late-stage delinquencies and charge-offs — especially in areas like California and Florida.
