FIirst American CoreLogic Study Investigates Impact of Mortgage Payment Reset

—Report Projects Foreclosure Patterns by Year for Adjustable-Rate Mortgages—


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 definitive and 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.  

The extensive database and analytical resources of First American CoreLogic were utilized to project the impact of reset as it relates to payment increases and foreclosure.  An electronic copy of “Mortgage Payment Reset: The Issue and the Impact,” is available at www.firstamres.com/MPR2007. For more information, or to arrange an interview with Cagan, please contact Analisa Schelle at (415) 677-2721.

About First American CoreLogic

First American CoreLogic, a member of The First American Corporation (NYSE: FAF) family of companies, was formed through the merger of First American Real Estate Solutions, America’s largest provider of advanced property and ownership information, analytics and services, with CoreLogic Systems, the leading provider of residential mortgage risk management and fraud protection technology and services.  The combined companies’ databases cover more than 2,900 counties, representing 99.1 percent of the United States population. With more than 600,000 users nationwide, First American CoreLogic products are used by businesses to improve customer acquisition and retention, detect and prevent fraud, improve mortgage transaction cycle time and cost efficiency, measure the value of residential and commercial properties, identify real estate trends and neighborhood characteristics, track market performance and increase market share.  More information can be found on the Internet at www.corelogic.com or www.firstamres.com  

About First American

The First American Corporation (NYSE: FAF), a FORTUNE 500® company that traces its history to 1889, is America’s largest provider of business information. First American combines advanced analytics with its vast data resources to supply businesses and consumers with valuable information products to support the major economic events of people’s lives, such as getting a job, renting an apartment, buying a car or house, securing a mortgage and opening or buying a business. The First American Family of Companies, many of which command leading market share positions in their respective industries, operate within five primary business segments, including: Title Insurance and Services, Specialty Insurance, Mortgage Information, Property Information and First Advantage. With revenues of $8.5 billion in 2006, First American has approximately 2,100 offices throughout the United States and abroad. More information about the company and an archive of its press releases can be found at www.firstam.com.

 

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