Mortgage defaults yet to peak - survey

By Jane Baird

LONDON (Reuters) - UK mortgage default rates are forecast to peak in 12 to 18 months but are unlikely to reach the level expected for the United States, according to a survey of participants in the mortgage securities market.

Standard & Poor's Fixed-Income Risk Management Services division polled investors and originators, split evenly between Europe and the United States and between investors and originators.

The projected default rates for U.S. high-risk subprime and Alt-A mortgages stabilised in the latest survey versus the previous quarter, suggesting the worse may be over for the higher-risk parts of the market.

"The U.S. survey participants certainly have seen a majority of the worsening of the leveraged deals behind them. Defaults are at a high level but steady," said Peter Jones, global head of valuation scenario services for the S&P unit.

The average forecast for the U.S. subprime default rate was at 15 percent for the next 12 months, rising to 15.3 percent in 12 to 18 months and then dropping off.

At the riskier end of the UK market, the worst is expected to come later. Non-conforming mortgage defaults are forecast to peak at 11.9 percent within 12 to 18 months for residential mortgage-backed securities (RMBS) issued in 2007.

The UK non-conforming RMBS category, which includes some subprime mortgages as well as other types of borrowers, is not directly comparable with U.S. subprime.

In the prime mortgage market, U.S. and UK forecasts peak at about the same time, although with the U.S. at a substantially higher level.