The next wave of mortgage defaults is almost certain to contain a significant percentage of non-subprime loans and may include a significant wave of defaults in the mid to high range.

We know that there is a mortgage default season because we know that there is a new home buying season.  Most new homes are purchased in the summer, and most ARM mortgages reset roughly 3 months later (after their 3 to 5 year interest holiday), usually in August, September and October.  Many market watchers have been waiting to see what those months will have in store for us this year.  According to  Bloomberg, it almost certainly won’t be contained to subprime mortgages and may include a significant wave of defaults in the mid to high range.

In February, JPMorgan analysts almost doubled their projections for losses on jumbo mortgages (loans over $417,000 in most areas) to as much as 10 percent because of increasing defaults.

According to Bloomberg, The number of U.S. homes entering the foreclosure process with values qualifying them for jumbo-loans  jumped 127 percent during the first 10 weeks of this year from the same period of 2008. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes,  data compiled by RealtyTrac, Inc. of Irvine, California, show.

About $500 billion of prime-jumbo mortgages are bundled into bonds, according to Memphis, Tennessee-based FTN Financial.    President Obama’s Homeowner Affordability and Stability Plan has no provision to help jumbo mortgage borrowers. That plan focuses on conforming loans, loans small enough to be bought by Fannie Mae and Freddie Mac.

From Bloomberg:

“There was this unrealistic view that the crazy financing was limited to subprime when of course it was across the board. A lot of jumbo mortgages were nothing down with high debt-to-income ratios.”  – Andrew Laperriere, Washington-based managing director at research firm International Strategy & Investment Group

Those stress test worst-case scenarios still looking realistic to anyone?