Fitch Ratings, one of the big three North American credit rating agencies, published its mortgage loss model today. It’s basically a bunch of formulas and assumptions that can be used for estimating losses on prime mortgages.
Fitch researched hundreds of thousands of mortgages and settled on six primary factors that drive defaults. They are (in order of significance):
Borrower equity (the strongest driver of defaults)
As you may notice, amortization length was not deemed a significant factor that influences arrears. In fact, it is pretty far down the list of items causing delinquency. Yet, as we saw this week, longer amortizations still get a bad rap in regulator circles.