Wednesday, May 23, 2007

Definition of early payment default

EPD = Early Payment Default/Delinquency = Default or Delinquency in the first 90-180 days of the loan.

It's a fairly precise industry term because contracts have covenants that require the loan originator to take back an EPD loan, even if the originator didn't do anything wrong. It is considered the "incurable defect."

That isn't to say that mortgage defaults on loans that are a year or two old are not very problematic. They are. Historically they aren't common; in "normal times" defaults don't start in a big way until 2-3 years into the life of a loan cohort, and have mostly shaken out by year 7.

So if you see a technically precise mortgage source using the term EPD, they mean the 90-180 day thing. If you're reading the newspaper, God help you and no wonder you're confused.

Thanks, Calculated Risk...

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