In California, a Unique State of Mortgage Borrower Behavior
California, one of the states hardest-hit by the housing crisis, also houses mortgage borrowers with some of the most innovative mortgage products -- and some of the most unique payment behaviors. The state contributed $2.6trn to the total $5.7trn of US housing wealth lost since the peak of the housing market in Q2 2006, according to US asset-backed securities research this week from Deutsche Bank. "Besides market share and loss of housing wealth, California is a market for innovative mortgage products, with a high concentration of subprime, option ARM, and jumbo loans," wrote analyst Ying Shen in commentary on the non-agency mortgage market. "California is a non-recourse and non-judicial state, which impacts the magnitude and timeline of a mortgage borrowers’ default." Not only is the Golden State unique in the overall housing crisis, but Californian mortgage borrowers display unique behaviors not seen in any other US borrowers. Across credit spectrums, borrowers in California experience slower voluntary prepayments (illustrated below) and faster involuntary prepayments within private-label residential mortgage-backed securities (RMBS) than borrowers in other parts of the country. Deutsche Bank found that, since late 2007, California borrowers defaulted faster than any other US non-agency borrowers. Since mid-2007, they also experienced higher foreclosure starts than borrowers in the rest of the US. The severe housing crisis in California has resulted in a high percentage of loans in the foreclosure pipeline. Consequently, the California foreclosure timeline has rapidly converged with the US foreclosure timeline, Deutsche said. On the buy side of foreclosures, Californians were moving through the backlogged inventory of homes at a faster rate in January, as house prices gained nationally in Q409, according to the California Association of Realtors (CAR). Of all homebuyers in California in 2009, 47% were first-time homebuyers, up from 35.9% in 2008, according to a separate CAR report. And while new blood entered the market, real estate owned (REO) and short sales made up half of the assets sold in the state. But servicers of California mortgages are also showing unique results over all other states. More active trial and permanent modifications under the Home Affordable Modification Program (HAMP) took place in California than any other state, according to the US Treasury Department. California led all states with more than 191,000 permanent and active trial modifications through January, according to the Treasury. Florida came in second with 116,000. Illinois was third with more than 49,000. Write to Diana Golobay.