So do you want the good news first or the bad news first?

Well, the good news is that the rate of default on subprime mortgages across the nation is starting to slow.  According to a New York Times article, “The problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults.”

A recent Knowledge@W.P.Carey article, from ASU’s school of business, showed that the national average serious delinquency rate on subprime mortgages is 20.74%; 8.35% for Alt-A mortgages; and 1.47% for prime mortgages.

So the stem of rising foreclosures among homeowners who took out subprime loans seems to be slowing somewhat, but rates of default on Alt-A and prime mortgages are rising (that’s the bad news, of course).

Again, from the New York Times: “The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled in that time.”

Alt-A loans typically went to borrowers who had strong credit scores but were unable to document their income fully – self-employed people, for example.  They’re not considered “sub-prime” in the sense that the borrowers haven’t had trouble repaying their loans in the past, but they are considered more risky than A-paper (prime) loans, so they carry higher interest rates.

According to the New York Times article, “In a conference call with analysts last month, James Dimon, the chairman and chief executive of JPMorgan Chase, said he expected losses on prime loans at his bank to triple in the coming months and described the outlook for them as ‘terrible.’”

At the height of the housing boom, even Alt-A and prime borrowers were falling for adjustable rate mortgages (ARMs) with low initial rates that reset dramatically after a few years option-ARMs, which gave borrowers the option to pay only interest (leaving them often owing more than the house is worth, especially when housing values stagnate or fall), and interest-only loans.  It’s those borrowers, more than any, who are running into trouble.

So just as the subprime crisis peaked as waves of ARMs reset, so will the Alt-A and prime foreclosure crises, experts say.

What do you think?