Reversing a long historic trend, mortgage default risk for consumers with high FICO scores now exceeds their credit card default risk, Minneapolis-based FICO recently reported. The provider of analytics and decision management technology said it uncovered this disturbing trend through observations taken from its subscription service for businesses, FICO Score Trends.

Through its analysis, FICO discovered a parallel rise in mortgage delinquencies for higher-scoring U.S. consumers, and it found recent repayment behavior across the financial services industry has shifted significantly from historical norms. In 2005, bankcard accounts were three times more likely than mortgage loans to become 90 days delinquent, but in 2008 and 2009, bankcard accounts were just 1.6 times more likely to become 90 days delinquent.

The company also found that for borrowers who scored high on the FICO’s 300-850 score range, the level of repayment risk has become greater for real estate loans than for bankcards. In 2009, 0.3 percent of consumers with FICO scores between 760 and 789 defaulted on real estate loans, notably higher than the 0.1 percent who defaulted on bankcards.

“We’re identifying lending industry situations in FICO Score Trends that to our knowledge have never been seen before,” said Dr. Mark Greene, CEO of FICO. “Economic instability is creating unknown risk in lenders’ credit portfolios as well as counter-intuitive trends in consumer behavior.”

Greene said even low-risk consumers are changing the value they give different credit lines, and he believes the CARD Act, which goes into effect next week, will likely create additional, unhelpful pressures on the banking business.

In FICO Score Trends, company experts found evidence that lenders tightened their criteria for new loans in 2008 through 2009 and began “cherry picking” the kinds of borrowers to whom they would extend credit. Likewise, mortgage loans opened last year between April and October reflected significantly tighter standards than in prior years. As lenders tightened their credit standards, it became correspondingly more difficult for consumers with delinquencies in their credit histories and lower FICO scores to qualify for additional credit.

In 2005, nearly 46 percent of consumers who opened a new mortgage had a FICO score of less than 700, but by 2008, this percentage had dropped to just 25 percent of the newly-booked mortgage population. In the bankcard sector, 51 percent of consumers with a new credit card had FICO scores less than 700 in 2005, but that dropped to just 38 percent in 2008.

FICO also used its analysis to learn how credit risk of real estate loans and bankcards varied across U.S. regions.

The most dramatic shift was found in the Pacific region. In 2005, bankcard accounts in this area were 6.4 times more likely to default than were mortgage loans, but in 2009, bankcard accounts were only 1.3 times more likely to default. The smallest relative change was demonstrated by consumers in the Midwest. There, bankcards were 2.5 times more risky of default than were mortgages in 2005, and in 2009, bankcards were 1.5 times more likely to default. Nationally, borrowers in the Northeast continue to present the least amount of default risk for real estate loans.

FICO’s findings echo a study published by TransUnion in early February. As DSNews.com reported, TransUnion found a continuing trend of consumers who pay their credit card payments prior to their mortgages. According to the study, the percentage of consumers who are delinquent on their mortgages and current on their credit cards rose to 6.6 percent in the third quarter of 2009, up from 4.3 percent in the first quarter of 2008.

But the experts at Lender Processing Services (LPS) caution that declaring the recovery has taken hold may be premature. And the Florida-based company has the numbers to back it up, based on its extensive market analysis of loan performance trends and a loan-level database of more than 40 million active loans.

During a press briefing at the Mortgage Bankers Association’s (MBA) National Mortgage Servicing Conference and Expo in San Diego Wednesday, Ted Jadlos, president and senior managing director of LPS Applied Analytics, advised market observers to beware of “picture frame” thinking when looking for signs of recovery.

Jadlos laid out a graph on the widescreen depicting monthly stats of noncurrent loans and foreclosures, spanning back to January of 1995. The lines zigzag in

small intervals, with noncurrent never rising above 6 percent and foreclosures never surpassing the 1 percent mark, until June 2007. From there, it’s a rigid and slippery slope up to January 2010 illustrating just how deep of a crisis we’re in, with noncurrent loans nearly hitting the 14 percent stratum and foreclosures dangerously close to 3.5 percent.

The vertical rise has yet to reverse – not even a smidge. Jadlos stressed that the pool of problem loans continues to grow and mutate. By LPS’ tallies, the total noncurrent loan count, including all delinquencies and foreclosures averaged 4.1 million during the months of January to June 2008. That average jumps to 5.6 million when you include all of the last two years, from January 2008 to January 2010. Looking at last month alone, the noncurrent count skyrockets to 7.4 million.

According to Jadlos, loan deterioration is outpacing efforts of the industry and the administration to restructure unaffordable mortgages. He says new problem loans far exceeded modifications from January 1, 2009 through January 31, 2010.

In that 13-month period, LPS’ data shows that 2.45 million mortgages turned from current to delinquent or in foreclosure. During the same timeframe, LPS says about 1.95 million modifications were initiated – 947,000 through the Home Affordable Modification Program (HAMP) and 1 million non-HAMP mods. Jadlos added that last month alone, 2.9 loans deteriorated for every one that improved.

According to LPS’ analysis, total delinquencies and foreclosure inventories are still climbing and continue to set new record highs. In January 2010, the company put the foreclosure rate at 3.27 percent.

According to a new study released by First American CoreLogic Tuesday, more than 11.3 million residential properties were in negative equity at the end of 2009. That equates to 24 percent of all homes in the United States with mortgages, up from 23 percent, or 10.7 million homes, at the end of last year’s third quarter. All told, the nation’s homeowners are a combined $801 billion underwater.

First American says an additional 2.3 million mortgages were approaching negative equity at the end of last year, meaning they had less than five percent equity. Together, negative equity and near-negative equity mortgages accounted for nearly 29 percent of all residential properties with a mortgage nationwide.

“Negative equity is a significant drag on both the housing market and on economic growth. It is driving foreclosures and decreasing mobility for millions of homeowners,” said Mark Fleming, chief economist with First American CoreLogic. “Since we expect home prices to slightly increase during 2010, negative equity will remain the dominant issue in the housing and mortgage markets for some time to come.”

According to First American’s analysis, negative equity continues to be concentrated in five states, where property values have plummeted significantly since the housing bubble burst.

As of the end of last year, Nevada had the highest percentage negative equity, with 70 percent of all of its mortgage properties underwater. It was followed by Arizona (51 percent), Florida (48 percent), Michigan (39 percent) and California (35 percent).

Among the top five states, the average negative equity share was 42 percent, compared to 15 percent for the remaining states. In numerical terms, California (2.4 million) and Florida (2.2 million) had the largest number of negative equity mortgages accounting for 4.6 million, or 41 percent, of all negative equity loans.

Last week, President Obama said he would give $1.5 billion to housing finance agencies in these states, which can be used to develop mortgage assistance programs to help underwater borrowers negotiate with lenders to write down mortgages.

First American says the rise in negative equity is closely tied to increases in pre-foreclosure activity and is a major factor in changing homeowner default behavior. Once negative equity exceeds 25 percent, or the mortgage balance is $70,000 higher than the current property value, owners begin to default with the same propensity as investors, the company explained.

Those conclusions don’t bode well when juxtaposed with the current market figures. The segment of borrowers that are 25 percent or more underwater account for over $660 billion, or 82 percent, of all negative equity. The average equity for an underwater borrower in Q4 was -$70,700, up from -$69,700 in Q3 2009.

On the other end of the scale, about 23 million, or 49 percent, of all homeowners with a mortgage have at least 25 percent equity in their home, and some 12 million have at least 50 percent equity in their home.