Moody’s recently put out a very chilling report that brings home just how early it is in the overall mortgage and housing implosion.
Many of us have written volumes on the impending Alt-A Implosion. But, I still don’t think people understand that the Alt-A universe, larger is size than SubPrime, is presently imploding in front of our very eyes. Unlike Subprime loans that were more localized to specific regions of the bubble states or lower priced areas, Alt-A loans cut across all socio-economic boundaries and can be found littering some of the most affluent areas in the nation.
For those of you who think that higher priced regions are ‘isolated’ from price declines just because they have not been beaten as badly as Subprime epicenters yet, this should be a wake up call.
The ‘Alt-A Implosion’ could dwarf the Subprime Implosion when all is said and done. This is because values in higher-priced, heavy Alt-A areas should actually end up being hit harder, as Alt-A loan allowed much more leveraged and much less documentation than Subprime relying mostly on a credit score and an appraisal for loan approval. Within the Alt-A universe is where all of your stated income, no ratio, no doc, 100% piggy-backs can be found. The most notorious Alt-A loan is the Pay Option ARM.
The way all of these loans were structured is producing a very linear mortgage crisis – from Subprime to Alt-A to Jumbo-Prime then Prime. Jumbo Prime is arguably a little less risky than Alt-A but includes much of the same types of loans such as the 5/1 interest Only. Much of this was also stated income, allowed high combined loan-to-values and carried low introductory teaser rates. With values down as much as they are in the Jumbo regions, I would suspect that Jumbo Prime will end up acting much more like Alt-A in the future.
The coming Alt-A and Jumbo Prime Implosions puts at risk well over $1 trillion in residential mortgage loans, much of it sitting on the balance sheets of some of the nations largest banks such as Wells Fargo, Chase, Bank of America and Citi. It will also take out of commission the higher income demographic for a long period of time.
At the very bottom of this post are many links dating back months on just how devastating the Alt-A Implosion will be. This is likely why banks and regulators are so gung-ho on mortgage modifications as of late. None have the balance sheet to manage high double-digit default rates on what they still consider to be ‘high grade’ loans.
Below are highlights from a recent release from Mortgage Daily. -Best Mr Mortgage
Alt-A Performance Sinks
Serious delinquency spikes on 2006, 2007 vintages
November 17, 2008
By MortgageDaily.com staff
Rapidly deteriorating performance on Alternative-A loans is prompting one ratings agency to warn that widespread downgrades are possible on Alt-A residential mortgage-backed securities.
As of October, delinquency of at least 90 days on Alt-A loans backing securitizations averaged 20.3 percent on the 2006 vintage, rising from 16.9 percent six months earlier, Moody’s Investors Service reported today. For the 2007 Alt-A vintage, delinquency averaged 17.5 percent last month, rising from 12.2 percent.
But Moody’s said prepayment rates are at historical lows — averaging in the mid to high single digits — and are expected to remain depressed in the near term in light of a tight credit environment and declining home-equity.
“Given the lack of pool seasoning, cumulative losses have not yet risen as steeply as delinquencies,” the ratings agency stated. “However, many pools are starting to show a sharp increase in the rate of loss realization. As the pace of liquidations has picked up, the performance data suggests worsening loss severities.”
Alt-A loans with subprime credit are performing worse than those with near-prime credit.
Moody’s noted that when Alt-A loans include an option adjustable-rate mortgage, delinquency outpaces that of pools without option-ARMs. This was attributed to weaker loan-to-values caused by negative amortization.The New York-based firm said it plans to review ratings on Alt-A transactions over the coming months.
Given the marked deterioration in recent performance, the expectation is that there will be further negative rating actions and in some cases, multi-notch downgrades,” the announcement said.
More on Alt-A
- S&P Doing the Nasty on $280 Billion in Alt-A…Largest Ever (33)
Posted on October 15, 2008 10:07 PM
- US Bank, Subprime & Alt-A Lender and Mortgage Holder? (24)
Posted on October 21, 2008 11:11 AM
- LIBOR Spike Not Only Hurts Suprime…Pay Options, Jumbo Prime, Alt-A Too (23)
Posted on October 8, 2008 2:20 PM
- Prime & Alt-A Defaults Surging Says S&P (21)
Posted on August 26, 2008 11:29 AM
- Moody’s & Fitch Join S&P in Massive Alt-A RMBS Downgrade Avalanche (31)
Posted on August 4, 2008 7:56 PM
- S&P Does Hatchet Job on Thousands of Prime, Alt-A and Subprime RMBS (28)
Posted on July 30, 2008 3:15 PM
- 10am EST – Moody’s Hits Lehman Due To ALT-A…Here Comes The ALT-A Crisis! (18)
Posted on May 5, 2008 1:54 PM