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First American CoreLogic Study Investigates Impact of Mortgage Payment Reset on the Lending Industry and National Economy

March 19, 2007



SANTA ANA, Calif., -- First American CoreLogic, a member of The First American Corporation (NYSE: FAF) family of companies, released a new study today that investigates the impact of mortgage payment reset and provides insight into which loans will be most affected when adjustable-rate mortgages convert from low introductory interest rates to higher prevailing market rates. The study, titled "Mortgage Payment Reset: The Issue and the Impact," is a comprehensive analysis of the issues surrounding mortgage payment reset during the next five to seven years. Authored by Christopher Cagan, Ph.D., director of research and analytics at First American CoreLogic, the study examines 26 million mortgages and focuses on 8.37 million adjustable-rate mortgages originated between 2004 and 2006 valued at $2.2 trillion. Of the 8.37 million adjustable-rate mortgages, the analysis projects 1.1 million foreclosures spread out over six to seven years, representing 13 percent of the adjustable-rate mortgages originated through purchase or refinance from 2004 to 2006. The total debt of these mortgages is $326 billion. After foreclosure and resale, it is projected that approximately $112 billion will be lost to remaining equity, lenders and investors over several years.

"The impact of mortgage payment reset on the economy has long been the subject of speculation and debate," said Cagan. "This study is intended to provide the financial community and mortgage lending professionals with a comprehensive framework for assessing the default and foreclosure risk associated with loan products that involve mortgage payment resets."

A key finding of the study is that the impact of reset-based foreclosure will focus on subprime mortgages and teaser-rate loans with low initial interest rates, interest-only or negative amortization features originated within the past three years. The research predicts that, due to payment reset in the absence of equity, 32 percent of teaser loans will default, 7 percent of market-rate adjustable loans will default and 12 percent of subprime loans will default over the next six to seven years.

The analysis concludes, however, that while those involved with the riskiest loans may suffer, on a national basis, the losses will translate to less than 1 percent of total U.S. mortgage lending projected for that period and will not significantly impact the economy or the mortgage lending industry.

Source: The First American Corporation



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