From CNN:

Prime mortgages are starting to record disturbingly high default rates, which could slow any potential housing recovery.

The delinquency rate for prime mortgages worth less than $417,000 was 2.44% in May, compared with 1.38% during May of 2007, according to LoanPerformance, a unit of First American (FAF, Fortune 500) CoreLogic which compiles and analyzes residential mortgage statistics.

Delinquencies jumped even more for prime loans of more than $417,000, so called jumbo loans. They rose to 4.03% of outstanding loans in May, compared with 1.11% a year earlier.

And prime loans issued in early 2007 are performing the worst of all, failing at a rate nearly triple that of prime loans issued in 2006 according to LoanPerformance.

Most likely, the great majority of those 2007 vintage loans were at 100 percent LTV, be it through a standalone first or a first-second combination (and all of those lenders holding those seconds are just getting killed). That means that it is more likely than not that those homeowners are now completely underwater, and owe more on their homes that they’re worth.

With the number of prime mortgages far above subprime and Alt-A, a rising wave of defaults of prime mortgages is extremely disconcerting, while not exactly surprising. Increased foreclosures and writedowns and bank losses could make what’s gone on already look like a walk in the park.