Our first report² provided detailed discussion of the purposes and formation of the State  Foreclosure Prevention Working Group and a discussion of the data collected in October  2007, the first month of data collection from 13 of the 20 largest subprime mortgage servicers. The second report highlighted trends from October 2007 through and including January 2008 for the same 13 servicers.³

This third report provides four additional months of data and follows the trends of these servicers through May 2008. The third report also provides trend comparisons from October 2007 and uses the data reported in January 2008 as a benchmark to which to compare the most recent collection of data in May 2008.

A. Summary of Servicing Activity

The third report includes data from the same 13 servicers providing data used in the first two reports. This data accounts for approximately 57% of the subprime market and encompasses just over 4.6 million subprime loans. As servicer reporting moves forward, revisions and improvements continue to be made in data reporting by the servicers. While revisions in data have not created material changes in trends reported, the third report includes updated and revised data from past months’ reporting.

Payment Resets

The data collected to date reiterate the trend of delinquency occurring in adjustable rate subprime and Alt-A loans prior to the initial rate reset. Thirty-three percent (3 3%) of the subprime loans facing reset in the 3^rd quarter of 2009 are already delinquent in May 2008, up from 29% in January 2008 and 22% in October 2007. This continuing trend of a significant portion of ARM loans being delinquent well in advance of the initial reset date confirms earlier assessments that unsound loan products, weak underwriting and mortgage origination fraud have been the primary causes of the crisis in subprime mortgage lending.

Moreover, relatively few subprime and Alt-A loans continue to enter default within three months following their initial rate reset. While this figure rose to 4.15% in May 2008, it nonetheless represents a relatively small proportion of loans where delinquency can be attributed directly to payment shock associated with an initial rate reset.

2  Analysis of Subprime Mortgage Servicing Performance, Data Report No. 1, State Foreclosure Prevention Working Group (Feb. 7, 2008), available at:

http://www.csbs.org/Content/NavigationMenu/Home/StateForeclosurePreventionWorkGroupDataReport.p  df.

3  Analysis of Subprime Mortgage Servicing Performance, Data Report No. 2, State Foreclosure Prevention Working Group (Apr. 22, 2008), available at:

http://www.csbs.org/Content/NavigationMenu/Home/StateForeclosureApril2008.pdf.