Real Estate investors played a big role in pumping up home prices during the housing boom. Now, they account for an outsize proportion of loan defaults, mortgage bankers and builders say.
A survey by the Mortgage Bankers Association found that mortgages on properties that aren't occupied by the owner -- mostly investment homes -- account for between 21% and 32% of the defaults on prime-quality home loans in Arizona, California, Florida and Nevada, states where overdue payments are mounting fast.
Defaults were high on both prime and subprime loans, those made to borrowers with shaky credit histories.
The four states were among the favorites of speculators during the housing boom. When the market was hot, many speculators bought homes hoping to flip them for a quick profit. But now that home prices have turned lower, that strategy is backfiring.
As a result, some investors have "simply walked away from their mortgages," said Doug Duncan, chief economist of the MBA, echoing recent comments from executives of Countrywide Financial Corp., the nation's largest mortgage lender.
Investor defaults are likely to add to the spate of foreclosed homes hitting the market over the next year or two, even as much tighter lending standards cut many potential buyers out of the market.
The darkening outlook for the housing sector has prompted economists at Goldman Sachs Group to predict that home prices nationwide will fall an average of about 7% both this year and next. Alarmed by such prospects, a group of top executives from home-building and supply companies are scheduled to meet next Wednesday with Federal Reserve Chairman Ben Bernanke to argue for Fed actions to support the housing industry.
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