As serious delinquencies climbed for the 32nd consecutive month, loan performance among RMBs’s (private residential mortgage-backed securities) showed continued weakness.

Overall, jumbo mortgage RBMS at a minimum of 60 days past due grew to an astounding 9.6 percent last month, a rise from 9.2 percent the previous month, Fitch’s data shows.

The firm claims prime jumbo mortgage delinquencies accelerated in 2009, although they began to rise in mid-2007, almost tripling throughout the year. Although, Fitch does note that pre-2005 jumbo mortgage loan delinquencies still remain much lower than the most recent originations.

The five states – Florida, Virginia, California, New Jersey and New York – which all remain as the states with highest volume of prime jumbo mortgage outstanding, comprise about 2/3 of the $381b jumbo mortgage market.

Although the largest jump of the above five was Florida which although holding 6% of the market share, now retains the worst serious jumbo mortgage delinquency rate of 16.6%.

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Moody’s now expects cumulative lifetime loss projections for US prime residential jumbo mortgage backed securities (RMBS) of 3.8% for 2005 securitizations, 8.0% for 2006 securitizations, 10.9% for 2007 securitizations and 12.3% for 2008 securitizations.

“Since our previous loss projections published on March 2, serious delinquencies (defined as loans that are 60 or more days delinquent, in foreclosure, or held for sale, i.e. real estate owned or REO) on prime jumbo pools for the 2005, 2006, 2007 and 2008 vintages have increased substantially to 3.3% from 2.2%, 6.2% from 3.8%, 7.9% from 4.8% and 8.0% from 4.6%, respectively. We expect delinquencies and losses on prime jumbo pools to continue to rise in 2010 as house prices continue to decline and unemployment levels continue to rise. In the previous loss projection update we expected these key macroeconomic variables to moderate by the end of 2009.”

“The loss upon default (severity of loss) on jumbo loans has also been rising in the last year. As house prices continue to depreciate, future loss severities are expected to reach around 50% on average, putting further pressure on loss expectations.”

“Further, recent government efforts to curb loan defaults and foreclosures through loan modification have thus far failed to gain the previously expected traction3, prompting us to reduce the average modification benefit to projected prime jumbo losses across vintages from 15% predicted earlier to less than 5% going forward.”

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Interest-only loans were commonly used to purchase homes valued at $750,000 or more. These exotic jumbo mortgages allowed borrowers to postpone making principle payments for three, five or seven years, but now those interest-only periods are ending, and the loans are beginning to reset to much higher payments.

At the same time, many of the white-collar workers who took the loans are facing job losses or cuts in their cash bonuses. If Wall Street bonuses shift from predominately cash to higher portions of stock that must be held for several years, the high-end housing market likely will face an even big shock.

Many of these wealthier homeowners may have planned to refinance their option adjustable-rate or interest-only loans before the resets, but they can’t do so because their homes are now worth less than the value of the mortgage. If they can’t afford their new, higher payments, default is the likely option.
Five States Feel the Most Pain

Making matters worse, the supply of unsold homes on the market priced above $750,000 continues to climb. JPMorgan Chase analysts estimate that it will take until at least 2012 for this market to recover. They also predict that peak-to-trough declines could surpass 60% in the high end, compared to 40% for the rest of the market.

Two-thirds of prime jumbo mortgages are concentrated in five states: California, New York, Florida, Virginia and New Jersey. The rates of prime jumbo mortgages that are 60 days or more delinquent include: California, 10.8%, up from 3.5% in 2008; New York, 5.8%, up from 1.8%; Florida, 16%, up from 7.3%; Virginia, 5.4%, up from 2.3%; and New Jersey, 7.1%, up from 2.3%.

California has the largest share of the jumbo marketplace with 44%. The next highest share is in New York with 7%, followed by Florida with 6%, Virginia with 5% and New Jersey with 4%.

Jumbo mortgage borrowers face much higher interest rates and lending standards as well. Most banks that make jumbo loans offer them at interest rates that are 1% or more higher than the rates for loans that don’t exceed the limits of Fannie Mae and Freddie Mac, which range from $417,000 in most of the country to as high as $729,750 in the most expensive housing markets. In addition to higher interest rates, banks are looking for down payments of at least 20% to 30% or more. This not only makes it harder to refinance; it also makes it harder to find a buyer for a home one can no longer afford.

Luckily for the banks, jumbo mortgages are not a major part of their portfolios. In the first quarter of 2009, homes priced over $750,000 accounted for only 2.3% of all sales, compared to 4.4% at the top of the housing market in 2007.

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1. Continuation of Deterioration in Jumbo Mortgage Market according to Fitch
2. December Hike in Number of N.J. Jumbo Mortgage Defaults
3. Is the Jumbo mortgage market beginning to thaw?