Strains among borrowers with patchy credit are rising, with more falling behind on their mortgages and fewer able to refinance their higher interest rate loans, according to a report by Standard & Poor’s, the credit rating agency.

The report into the peformance of securities backed by so-called nonconforming mortgages shows that the total delinquency rate for mortgages rose to a record 23.31% of the total pool as at June 30 – up from 22.17 at the end of the first quarter.

Seriously delinquent loans – those overdue by over three months – rose to 12.12% of the total. Roughly 70-80% of all subprime mortgages have been packaged into securities and their performance shows how those loans, never tested in an economic downturn, will behave.

Moreover, the rate at which borrowers are prepaying their mortgages – which can often reflect refinancing activity – fell to 23.98% from 24.75 at the end of the first quarter. S&P said it expected the trend to persist, 'given a sharp contraction in refinancing options for borrowers and stricter lending criteria'.

Financial Times