Ventera SVP of Financial Solutions Gopal "Sharath" Sharathchandra Publishes Housing Defaults Forecast White Paper

RESTON, Va., Nov. 10, 2022 /PRNewswire/ -- Ventera's SVP of Financial Solutions Gopal "Sharath" Sharathchandra has released a new white paper in his housing market series. In this white paper, titled "How High Will Mortgage Defaults Go? Lessons From the 2007 Recession," Sharath forecasts the impact the recent decline in house prices will have on mortgage defaults.

According to his findings, house prices are likely to decline compared to 2007 across a bigger population with a larger geographic footprint. This decline is likely to be comparable in magnitude to what was experienced in only a few regions in 2007. Unlike in 2007, when it was high house prices that made homes unaffordable, today it is both high house prices and mortgage rates which have recently shot up to the highest level in 20 years. The national nature of mortgage rates has contributed to a geographically broader increase in house prices and is now likely to make the decline in house prices similarly so.

The post-2007 mortgage default data does not support the argument made by a number of economists that, even if house prices were to decline steeply, there is little likelihood of mortgage defaults being anything similar to the post-2007 experience because of stronger underwriting and better borrower financial conditions today. Rather, the data indicates that the biggest driver of mortgage defaults is falling house prices and the negative equity that results from it and that this, by far, outweighs the contribution of borrower and underwriting characteristics such as FICO scores or subprime status.

The post-2007 credit loss data from Fannie Mae and Freddie Mac show that even the low-risk portion of the prime mortgage portfolio contributed 40% of total credit losses with the overall prime portfolio contributing nearly 70%. Today's prime portfolio is arguably higher risk, due to higher loan-to-values, and has a greater volume of vulnerable borrowers than did the 2007 prime portfolio, raising the potential for even bigger losses today if a house price decline comparable to 2007 was to occur.

Will mortgage default rates be similar to what they reached in 2007? Will there be a recession similar to what we saw? Sharath forecasts what you can expect and how the government and the financial services industry can prepare for these predicted outcomes. To read the full white paper, visit www.ventera.com/insights.

Ventera is a consulting firm that solves complex challenges for business and government. Through user-centered Agile development, we build products and solutions that are people smart and outcome driven. Based in Virginia and serving businesses and federal agencies focused on financial services, healthcare, and communications, we pride ourselves on forging the essential people, technology, and industry connections that drive true innovation and partnership. To learn more visit www.ventera.com.

Contact: Sean Lajoie
Phone: (703) 760-4600
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SOURCE Ventera