Posted on May 28th, 2008 in Daily Mortgage/Housing News - The Real Story
I have written enough about ALT-A to fill a phone book, so at the bottom of this post is the story summarized by Bloomberg. ALT-A is from where the real disaster in the bubble states like CA will come.
The ALT-A crisis may make the subprime crisis look like a bump in the road when all is said and done.This story is really picking up steam lately, but it seems like as with the suprime crisis at the beginning, the mainstream media and definitely Washington is not giving this much attention. In my opinion, the ALT-A space collapsing could cause much larger crisis for the broader economy because ALT-A loans cut across all socio-economic boundaries and were used most heavily in in the nation’s most affluent cities/regions.
If you watch the video I did last month called ‘ALT-A Disaster Looming, Know the Facts’ I go over the loan characteristics of the ALT-A universe. While much is identical to subprime, the average Alt-A borrower has an average credit score over 700 and they are still defaulting at a 14% rate when this video was done and 18% now. This is exactly how subprime defaults began over a year ago.
Many said a year ago+ when New Century collapsed that they were the ‘canary in the coal mine’. I have always said ‘the entire subprime sector is the canary in the coal mine’.
Below is the Bloomberg/S&P release and various Mr Mortgage reports on the ALT-A crisis coming to a city near you right now. -Best Mr Mortgage
- ALT-A DISASTER LOOMING – KNOW THE FACTS
- PAY OPTION ARMS – SUBPRIME’S BIG BROTHER– Mr Mortgage youTube Series
- LEHMAN’S DIRTY ALT-A EXPOSRE– Mr Mortgage youTube Series
S&P Cuts, Reviews $34 Billion of Alt-A Securities
By Jody Shenn
May 28 (Bloomberg) — Standard & Poor’s cut or may lower ratings on almost $34 billion of securities backed by Alt-A mortgages, the firm’s largest downgrade for the type of debt.
Ratings on 1,326 classes of the bonds created in the first half of 2007 were reduced, New York-based S&P today said today in a statement. S&P put another 567 similar bonds with AAA ratings under review. Based on the balances of the bonds at issuance, 14 percent of the total from the period were either cut or placed under review.
Late payments of at least 90 days and defaults among Alt-A loans underlying bonds issued last year rose to 6.64 percent as of April bond reports, up 65 percent since January, S&P said. Defaults on all types of home loans have surged amid record U.S. property-price declines.
Alt-A home loans were made to borrowers who wanted atypical terms such as proof-of-income waivers, delayed principal repayment or investment-property collateral, without having to offer sufficient compensating attributes.
Call for Changes
The International Organization of Securities Commissions today called for changes at ratings firms in response to their failures to accurately assess the risk of mortgage securities, including independent reviews of the way rankings are assigned.
The firms will be banned from recommending how products are structured to help prevent conflicts of interest, according to Madrid-based IOSCO, the forum for more than 100 regulators. The companies also should create new ratings to differentiate structured bonds from corporate securities, it said.
S&P has downgraded 66 percent of 2007 subprime-mortgage securities, by the number of classes, and 96 percent of 2007 second-mortgage bonds. The firm’s downgrades on collateralized debt obligations used to repackage mortgage bonds into new securities total more than $350 billion, its biggest cuts amid the housing slump.