Moody's said in a report that default rates for prime jumbo mortgages will increase, but a strong economy and rising home prices will bail most borrowers and lenders out, National Mortgage News reported. Higher home prices play a double-edged sword, reducing affordability and contributing to lenders' deciding to ease underwriting. However, they can also help delinquent borrowers become current or pay off their mortgage. "Originators' underwriting standards loosened after a period of negligible defaults, fueled by the strengthening macroeconomic environment and typical competitive pressures that occur late in the credit cycle," said the Moody's report from Siddharth Lal, Karandeep Bains and Joseph DiMiceli. "The debt-to-income ratio for mortgages in prime jumbo residential mortgage-backed securities that we rate has been on the rise since 2015 signaling decreasing affordability." While the 60 day or more late payment rate for older loans (issuances between 2012 and 2105) remained relatively flat at 0.05 percent, "in more recent vintages the delinquency rates have steadily climbed higher since issuance, inching up to 0.2 percent as of December 2019," Moody's said.
