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While overall mortgage performance in California is not substantially different from that of the United States, it's a different story for regions within the state, ""Fitch Ratings"":http://www.fitchratings.com/index_fitchratings.cfm reported Wednesday.
[IMAGE]Fitch recently conducted a study of all securitized non-agency California mortgage loans, finding that delinquency rates in the Golden State are fairly similar to national levels. For prime loans, 60-plus day delinquency rates are at 12 percent in California compared to 10 percent nationally. And Fitch said the delinquency rates for other sections are similar as well.
But a closer look revealed dramatic differences among various regions within the 382 metropolitan statistical areas (MSAs) tracked by Fitch. In fact, Fitch found that California has both the best performing region in the country â€" San Francisco-San Mateo-Redwood City (San Francisco) â€" and some of the worst performing regions, such as Riverside-San Bernardino-Ontario (Riverside).
According to the study, Riverside's 23 percent prime 60-plus day delinquency rate is more than five times that of San Francisco's delinquency rate of 4 percent. Fitch found this performance difference to be consistent across all sectors, with 50 percent of non-prime mortgages more than 60 days delinquent in Riverside compared to only 23 percent for San Francisco loans. Even option adjustable rate mortgages (ARMs) and subprime loans from San Francisco outperform Alt-A mortgages from Riverside, Fitch said.
Roelof Slump, managing director at Fitch, said delinquencies in California are highly correlated with the level of negative equity. He said regions with the largest home price increases have also seen the more precipitous declines.
From 2000 to 2006, nominal home prices in San Francisco increased by 81 percent and have since declined 22 percent from their peak. And over the same period, prices in Riverside have declined 55 percent from their peak after jumping 193 percent, Fitch said.
Consequently, 90 percent of Riverside mortgages are now underwater, with nearly 60 percent of borrowers owing more than 150 percent of the value of their home. Fitch estimates the weighted average current loan-to-value ratio (LTV) in Riverside to be 164 percent. By comparison, Fitch said less that 1 percent of San Francisco mortgages are more than 50 percent underwater, with a weighted average current LTV of 81 percent.
Slump said property value declines in California are having a dramatic effect on borrowers' willingness to pay their mortgage. Nationally, 39 percent of underwater borrowers and 58 percent of borrowers more than 50 percent underwater are 60 days or more delinquent, compared to 18 percent for non-underwater mortgages. Conversely, Fitch found that the four California MSAs with the lowest level of home price appreciation from 2000 to 2006 have the lowest level of delinquency rates.
Fitch also found that San Francisco has a lower percentage of subprime loans (6 percent) and a higher percentage of prime loans (49 percent) than any other MSA in the country. By comparison, 34 percent of outstanding Riverside loans are subprime and only 15 percent are prime. Nationally, 31 percent of outstanding loans are subprime, and 25 percent are prime.
According to Fitch, California represents approximately 40 percent of the overall non-conforming mortgage origination volume, making trends in the state important for both new and existing securities.
