Moody’s Economy.com forecasts that defaults won’t peak until 2008 due to ARM resets and falling home prices.

Les Christie, CNNMoney.com
NEW YORK (CNNMoney.com) — The already poor performance of many mortgage loans will worsen substantially through the rest of the year, according to an analysis released Thursday by Moody’s Economy.com.

The company predicts that 2.5 million first mortgages will default this year, with little chance for improvement soon - Economy.com expects delinquencies to peak in the summer of 2008 at 3.6 percent of all outstanding mortgage debt, up from 2.9 percent during the first three months of 2007.

The worst-hit loan category will be subprime adjustable-rate mortgages (ARMs). Economy.com expects foreclosures for those loans to hit 10 percent of that group by mid-2008. The foreclosure rate for that group is currently 4 percent and was as low as 2.5 percent in 2005.
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