Risk of Foreclosure by Mortgage Type

The Arizona Repulic reported yesterday that not only is the inventory of homes for sale at an all time high but that homes marked for short sale to avoid foreclosure is also up. Bankrate has some pretty interesting numbers on foreclosure risk based on the type of mortgage.

• Prime-rate fixed-rate: 1 in 588
• Prime-rate ARM: 1 in 189
• FHA fixed-rate: 1 in 147
• FHA ARM: 1 in 101
• VA: 1 in 244
• Subprime fixed-rate loan: 1 in 77
• Subprime ARM: 1 in 31

I find it revealing that ARM’s have a higher rate of foreclosure. Most likely it is a result of a pre-payment penalty and/or poor credit management on the part of the borrower. Lack of strong loan analysis by the loan officer probably has something to do with it as well.

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