Alt-A Implosion Looking Very Much Like Subprime Implosion

Posted on June 26th, 2008 in Daily Mortgage/Housing News - The Real Story, Daily Stock Market / Economic News - The Real Story

Paul Jackson of Housing Wire , one of my favorite sites, put together the little Alt-A ditty below with research from Clayton Holdings, a leading benchmarking and analytics firm.

The numbers are staggering. Delinquencies among Alt-A first liens hit 21.22 percent in May, up 10.5 percent in a single month;  2007 fared even worse, with 60+ day delinquencies ratcheting up 22 percent to 18.55 percent.

On April 16th, I released a video highlighting the Alt-A space and its similarities to  subprime entitled , ‘Look Out! Here Comes the Alt-A Crisis’, which you may want to watch in order to fill in any blanks and find where to get other important data.

In summary, Alt-A delinquencies and defaults are growing at an astounding pace. The highlights are as follows:

-60+ day delinquency percentages and roll rates increased in every vintage during May among Alt-A loans, while cure rates have declined only for 2003 and 2007 vintages.

– Alt-A is increasingly beginning to look a whole lot like subprime

– peak resets in the loan class aren’t expected until the middle of next year. In particular

– loss severity continues to ratchet upward — a trend that portends some likely further reassessment of rating models at each of the major credit rating agencies

– Loss severity reached 41.4 percent for all Alt-A first liens in REO during the most recent rolling six month period through May, Clayton said; that was up from a 37.6 percent rolling average one month earlier

– Loss severity compares to a similar 49 percent loss severity average for subprime first liens liquidated in REO through May.

– The latest Alt-A assumption of 35 percent loss severity on Alt-A loans, only one month old, already start to look a little too conservative

– The Ratings agency’s updated loss severity assumption was one key reason the agency cut ratings of 1,326 Alt-A residential mortgage-backed securities in late May — and put another 567 AAA-rated tranches on negative ratings watch

– 2006 vintage saw 60+ day borrower delinquencies among Alt-A first liens reached 21.22 percent in May, up 10.5 percent in a single month; 2007 fared even worse, with 60+ day delinquencies ratcheting up 22 percent to 18.55 percent

– Even the 2004 Alt-A vintage is defaulting at a fast pace: 60+ day delinquencies in the vintage shot up by nearly 24 percent in just one month

– The problem is rapidly falling home prices and a weakening economy are the chief culprits here.

– Out of all the active delinquent ARM loans in Clayton’s portfolio, approximately 70 percent were already delinquent prior to the first rate change date,” analysts at the firm noted in their report

18 Responses to “Alt-A Implosion Looking Very Much Like Subprime Implosion”

  1. Mr. M: According to my chart, ALT-A of 2008 is somewhere between 10-15B, is it correct?

  2. Chinese stock market is now down 4.74%

  3. easily 20x that Feng.

  4. Ah yeah this morning the usual bullshiters at Bloomberg are saying that things are not that bad. Jokers and criminals boosting their garbage all the way down. These people are disgusting. I listen to them just to confirm how rotten Michael Bloomberg is, him and his partners Merrill Lynch. Merrill is shareholder of Bloomberg and it shows !

  5. Of the surviving banks (not IndyMac :), who has the most Alt-A exposure? Wachovia? WaMu? Lehman?

    Any other short opportunities with a little more meat on the bone?

    Anyone willing to share their favorite Alt-A shorts?


  7. Reggie Middleton’s Boom and Bust blog has a precious list of 32 banks that are in real trouble. Not just Alt-A.

    That’s the problem. The market has moved so quickly, that mayve it’s better to short the banks that are still holding because investors have the illusion that they won’t be a victim. As for Morgan Stanley it’s mostly Level 3 that is scary. Don’t know how they manage to not recognize massive losses and get away with it ? By lying ? Most probably like Lehman did a couple of months ago.

  8. Thanks Marc. I’m actually already loaded up on MS October $20 Puts on — mostly due to Reggie’s work. Glad I’m barking up the right tree:) But the silence surrounding MS has been deafening. I suspect its a bad thing, but its hard to say how long the denial can continue.

    By the way, I’m a big fan of your comments! Keep them coming!

  9. Here is the list Gavshire.

    Here the exhaustive list of financial institutions exposed the most to LEVEL 2 and LEVEL 3 intitutions exposed to the mess.

    MASSIVE DILUTION JUST AHEAD ! There is no way that the financials won’t be massively diluted.

    Look at the list. It’s really exhaustive.

  10. I agree…. WHERE IS THE MS NEWS?? Quick 20 -45 sec blurb on Bloomberg TV. NOTHING IN PRINT!! I think they’ll wait until after the close so it doesn’t push it down further. Also….. they just ran a news clip of Bear Stearns WINNING their Hedge Fund Court Case. Hmmmm…. let’s get the good news out there first, pump it up and then kill the public in the market with a sell off.

  11. Hey on the ground, it seems that people working in real estate are having a lot of fun.

  12. I’m a stay at home mom, and I have been reading this blog/website for sometime now including most of the comments. Love all the great info! I have bought puts against Morgan Stanley and Lehman. Wondering if buying puts against Goldman would be a good bet? Or will they be the only one left standing after all their competition bites the dust? Love to hear from you all!

  13. Seeing the Alt-A implosion up close and personal in the city where I live. 233 Foreclosure filings just in the 1st half of June, but all you see and hear about is how home sales volumes are up. The general public is finally figuring out that the only reason homes are selling is because prices are discounted 40-60% below 2006 prices.
    I was also amused and disgusted this week as I watched CNBC talking heads saying GE is a great buy. They went on and on for about 5 minutes with their hard sell, slimy, non-sensical lies. I’m glad Little League ended in May because I would have thrown a baseball or bat through the TV set. I know some poor guy in Alabama just sunk his life savings into GE and didn’t realize that fudgin’ CNBC is owned by GE!!! Keep up the good work Mr. M. People need to know the truth.

  14. Sharkee – nope. The DataQuick numbers I use capture ALL sales transactions. The CAR only uses resales, very few builder deals.

  15. The most funny in the list is Northwest Ailines.
    You have double whammy here. Airline strangled by oil and real weird assets in their balance sheet. What where they doing with this stuff in the first place ?

  16. If the “Housing Bailout” bill goes through, how will it affect these Alt-A type loans?

  17. If the recent “Housing Bailout” gets approved, what effect will that have on these Alt-A type loans???

  18. Bailout with borrowed money ? It’s like putting out a fire with gazoline. It won’t change a thing. Did the 600$ checks helped the economy ? Not one bit. Much lower house and oil prices would be more helpful than any stupid political aid package financed with deficits and future taxes. There is no magic here.

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