Borrowers either never moved into or later vacated homes for at least 25 percent of U.S. mortgages that were described as being for “owner occupied” properties when bundled into securities, according to 1010data.
Misrepresentation of a mortgage’s intended use as a residence accounts for about half of the falsely labeled loans, with the rest reflecting borrowers that subsequently moved out, according to a study by the New York-based firm, which sells software used to analyze data. The mortgages were packaged into bonds without government backing from 2004 through 2008.
“We found a lot of loans where it was pretty clear the borrower didn’t occupy the property,” Jonah Green, the company’s director of mortgage analytics, said yesterday in a telephone interview. The figures don’t include a “significant” amount of debt for which the firm couldn’t conclusively confirm occupancy through the data used, he said.
The report underscores why mortgage-bond investors and insurers including Allstate Corp., Pacific Investment Management Co. and MBIA Inc. are seeking to force banks to repurchase tens of billions of dollars of soured debt. The study’s results, garnered from information including homeowner mailing addresses, also highlights how buyers of securities face challenges in evaluating opportunities in the $1.3 trillion market.
Loans tied to borrowers who have left properties are more likely to default, move through foreclosure faster and turn delinquent after being modified, Green said. Investors aren’t told by bond trustees or loan servicers when homeowners leave, he said. Since mortgage-bond spreads have decreased and the debt is more actively traded, that makes the information “more relevant,” he said.
Securities backed by subprime or second mortgages offer projected yields about 4.25 percentage points on average more than Treasurys, after spreads soared to almost 15 percentage points in June 2009, according to Bank of America Merrill Lynch index data. The debt returned a record 19 percent last year, after a record 34 percent loss in 2008, the data show.
1010data’s report used information from Santa Ana, California-based CoreLogic Inc. and Equifax Inc. of Atlanta. The firm’s customers have included more than 50 hedge funds, money managers TCW Group Inc. and Putnam Investments, and banks such as Bank of America Corp. and UBS AG, according to its website.
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