Earlier in the year, I discussed the possibility that the excessive use of piggyback loans in recent years might have caused homeowner delinquency to be overstated:
The theory is that some homeowners are doubtless in default on both their primary mortgages and their piggybacks. Every such borrower might be served with two NODs [Notices of Default] — one for each mortgage. The number of NODs filed could thus be overstating the number of homeowners in trouble as compared to what we saw in the early 1990s, when piggyback mortgages weren’t as ubiquitous.
The conclusion at the time was that the piggyback lenders had little reason to undergo the expense of filing a default notice:
By now, in other words, issuers of piggyback mortgages may have realized that there is little chance of recovering any losses and stopped bothering to initiate foreclosure proceedings. If this is the case, then the period of double counting has already come and gone.
This was just a guess, as I stated at the time, but I’ve recently come across some data that allowed me to put our conclusion to the test.
Awesome analysis, Rich.
Awesome analysis, Rich. While you’re at it, can you break the refined dataset down by loan amounts? Probably the most popular loan combo was the 80/20. Maybe we can get an idea which price ranges are causing the most problems.
It would be especially interesting to track these trends going forward. Whereas it might be the lower price ranges suffering the higher rates of failures right now, I think anticipate that trend will expand up to and including the $1.5mil price ranges as time goes on. Beyond that more buyers have more cash to put into their deals.
Excellent analysis. Thanks
Excellent analysis. Thanks Rich!