August 23, 2010
A report released last week by Standard and Poor’s Ratings Services predicts default rates on HFA loans may increase in the second quarter of 2010.
 
The report, entitled "The Rise In Housing Finance Agency Delinquencies Has Slowed, But The Future Is Uncertain,” explains that in the first quarter of 2010, HFA delinquencies declined for the first time since the second quarter of 2008. According to the report, the extension of the home buyer tax credit, which has since expired, may have helped minimize new defaults and slow the rate of cumulative defaults.
 
However, S&P believes that unemployment levels, coupled with the ongoing effect of the expiration of the home buyer credit, may bring delinquencies back up in the second quarter. In addition, reports S&P, difficulties restructuring loans and the delays in the foreclosure process will likely lead to bringing foreclosed homes on the market for another 18 months; further hampering consumer demand resulting in higher delinquency rates.
 
Without a decrease in unemployment coupled with substantial economic improvement, S&P expects HFA delinquencies will likely remain high.
 
Delinquencies are only one part of S&P’s criteria for ratings; other factors, including debt profile and counterparty and mortgage insurer exposure, also play a large role. The report explains that fluctuations in delinquency rates alone will not cause ratings action at this time.