Posted on May 7th, 2008 in Daily Mortgage/Housing News - The Real Story
A Fitch must-read just came out. Other than Egan-Jones, I feel that Fitch is the best rater out there, although they are a little slow at this one. But, then again much faster than S&P, Moody’s, most mutual and hedge funds and 99% of the mainstream press.
Fitch concluded that ‘high-risk attributes coupled with continued home price declines and the sharp contraction in available NON-AGENCY mortgage capital’ are the primary factors in ‘The Alt-A Implosion’, playing in city near you this very minute.
They cite that in the Alt-A arena, as with subprime, that loans with ‘simultaneous second liens (SSLs, aka piggybacks) are defaulting at very high rates relative to other loans and to history’. They say the ‘performance divide between loans with SSL compared to those without exhibit delinquency levels 71% to 300% higher’. They also say ‘borrowers with perceived equity default at lower rates than those without’. This is the ‘negative equity effect’ I have talked about so many times in the past year.
Fitch says ‘hybrid ARMs are exhibiting the highest rate of delinquency and fixed rate the lowest’. OPTION ARM performance is comparable to that of fixed rates ONLY FOR THE FIRST 12-MONTHS AND THEN DELINQUENCIES QUICKLY APPROACH HYBRID ARM LEVELS BY MONTH 18.
For those of you who are not acknowledging the ‘Alt-A Implosion’ is real and is here, this is more evidence for you. It has been my opinion for a very long time that ‘The Alt-A Implosion will make the Subprime Implosion look like a bad earnings report because Alt-A cuts across all socio-economic boundaries and the loans in most cases are truly exotic.’At least with subprime, the principal mortgage balance does not GROW each month as with the soon-to-be infamous Alt-A Pay Option ARM.’
Below are many stories I have done on the impending Alt-A crisis. You might want to have a look. This story so important and gets so little attention. The US housing market and economy in general likely cannot withstand an all-out Alt-A Implosion, which could be a blow equal or larger than the Subprime Implosion. –Best, Mr Mortgage
MORE MR MORTGAGE STORIES/RESEARCH ON ALT-A