Tuesday, October 28, 2008

First Fed: Over 22% of Loan Portfolio to Underwater Households

by Bill McBride on 10/28/2008 12:02:00 AM

The 8-K filed by First Fed with the SEC today has some interesting information on current LTVs. (hat tip Brian)

First Fed Loans by LTV Click on table for larger image in new window.

This table shows the original LTV of First Fed's $4.5 billion loan portfolio, and the current LTV using OFHEO House Price Index for price declines.

This shows that about 22.3% of First Fed loans (by dollar) are underwater. It would be a larger percentage using the Case-Shiller price index.

Approximately $1.0 billion in loans are underwater out of $4.5 billion in loans.

First Fed Percent Delinquencies by LTV Using the above table, and the delinquent loans by LTV on page 8, we can determine the percent delinquent by LTV category.

As expected, the higher the current LTV, the larger the percentage of delinquent loans. Probably most of the loans listed as 90% to 100% LTV are also currently underwater too since First Fed uses OFHEO (and Case-Shiller is probably worse and I believe more representative of actual price changes).

Also see the bottom of page 7 for delinquencies by borrower documentation type. For Verified Income/Verified Assets loans, 5.7% of loans are delinquent. For Stated Income (and no income) loans, around 20% of loans are delinquent. Not exactly a surprise ...

This is important for the entire industry: the higher the LTV, the higher the delinquency rate. As house prices continue to fall, and more and more households have negative equity - Moody's Economy.com estimates 12 million households currently are underwater, and this will probably increase to 20+ million by the time housing prices bottom - the delinquency rate (and foreclosures) will continue to increase.