Mortgage Default Rates and Mortgage Default Losses – There is an Important Difference

There is risk of loss in any investment. Investors in residential mortgages do not necessarily lose money when a borrower defaults. In the event of a default, a property will be auctioned at foreclosure, and the investor is paid out of proceeds from the sale of the property. Only in the event that the sale of the property does not cover the outstanding balance on the mortgage does the investor lose money. Therefore, mortgage defaults do not necessarily create mortgage default losses.

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