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[Getting Graphic] Not Able To Appreciate Their Defaults

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Source: Federal Reserve Bank of Boston


An Inman News story (subscription) covered [1] the release of a new study of the relationship of default rates and housing appreciation [2]:

House price appreciation plays “a dominant role” in generating foreclosures, according to a study released today by the Federal Reserve Bank of Boston, “Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures. [2]

The idea that lower rates of appreciation in a market would lead to higher default rates as borrowers are unable to refinance their way out of trouble.

The study, of the Massachusetts housing market from 1989 to 2007, found homes originally purchased with a subprime purchase mortgage ended up in foreclosure about 18 percent of the time, or more than six times as often as those purchased with prime purchase mortgages

About 30 percent of foreclosures in the state during 2006 and 2007 were traced to homeowners who used a subprime mortgage to purchase their house.

A higher percentage — almost 44 percent of foreclosures — were on homes whose last mortgage was originated by a subprime lender. About six out of 10 of those borrowers had originally purchased their home with a prime mortgage, and then refinanced into a subprime mortgage.