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Mortgage Defaults Decline Despite High Unemployment: S&P

Consumer default rates declined in September across certain structured finance categories, including first- and second-lien mortgages, according to a report issued Thursday by ""Standard & Poor's"":http://www.standardandpoors.com highlighting the most recent S&P/Experian credit default indices.

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The index measuring second-lien mortgage defaults dropped 10.8 percent compared to the previous month. The default rate for first-lien mortgages also recorded a 4.4 percent decline.

S&P says defaults in the bankcard and auto loan categories are also falling, indicating consumers are getting a better

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handle on their financial situation and doing a better job of managing debt obligations overall.

""The improvements, which have continued since last year, came despite a national unemployment rate that is still near its peak for the recent recession,"" noted Erkan Erturk, a credit analyst for Standard & Poor's.

Erturk says several factors may explain why default rates are falling despite the high jobless rate, including the tendency for improvements in unemployment to lag an economic recovery and the tighter underwriting standards lenders began to implement beginning in 2008.

Despite September's drop in defaults, S&P believes the performance of debt collateralized securities are likely to face challenges until unemployment falls closer to its long-term historical averages.

""We expect unemployment to remain high for many months to come,"" Erturk said, ""and because of the strong historical correlation between unemployment rates and the credit performance of consumer loans, along with economic weakness, participants in certain consumer structured finance markets are likely to have continued concerns about collateral performance.""

The federal government is scheduled to release updated unemployment figures on Friday.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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