Fitch, Moody’s & S&P Continue to Trash Alt-A & Jumbos

Posted on December 15th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

The raters have had a field day on Alt-A and Jumbo Prime RMBS over the past few months, even though they are always late to the party.  Our data and research have been showing Subprime defaults wane and Alt-A, Jumbo Prime and Prime defaults surge for many months now, but at least they are beginning to get the real story out there.

Please see my most recent story on Jumbo Prime:

As a matter of fact 60 Minutes ran a story last night about Alt-A and Pay Option ARMs that seemed as though someone over there has been reading this blog.  Both of these should be indicators to you that the Alt-A and Jumbo Prime Implosions are in full effect as I type. To add to this, the government is throwing everything it can at mortgage and housing, including trash mortgage modifications offering teaser rates, negative amortization and 40-year terms. This should be a fairly good indication that conditions are much worse than what is being reported.

Remember, this problem is very linear… from Subprime to Alt-A to Jumbo Prime to Prime with negative equity and resets being leading indicators to default and foreclosure. HELOCs blow up throughout the entire chain, as they were used with all loan types in order to achieve the most amount of leverage possible. Think of these as four different ball games going on simultaneously. Subprime is in the 7th inning, Alt-A in the bottom of the 3rd, Jumbo Prime in the 2nd, Prime conventional in the 1st and HELOCs a sideshow playing at all of the games. Overall, my best guess is that the mortgage implosion is somewhere in the 3rd inning if left to run its course naturally.

Below are a couple of recent stories that show how quickly this is going bad. The losses are extreme but roughly in-line with what we are seeing for whole loans in foreclosure on the balance sheets of Wells Fargo, Bank of America, Chase, Citi and Wachovia. -Best, Mr Mortgage

Fitch Ratings-Chicago-15 December 2008:

  • A rapid deterioration of U.S. Alt-A RMBS performance in recent months has effectively entrenched the sector in a severe stress scenario, according to Fitch Ratings.
  • The expected losses used in Fitch’s updated methodology are significantly higher than Fitch’s previous ‘moderate stress’ scenario used to drive the rating actions taken earlier this year.
  • One major driver of the increased loss expectations is the rapid increase in 60+ day delinquencies experienced over the past six months.
  • Between May and October 2008, 60+ day delinquencies for the 2007 vintage increased from 8.80% to 14.65%.
  • The 2006 and 2005 vintages also experienced steep increases rising from 10.30% to 14.24% and 6.57% to 8.79%, respectively.
  • The small increase in cumulative losses relative to the rising level of 60+ day delinquencies reflects, in part, the lengthening foreclosure/liquidation timeline being experienced throughout all vintages.
  • Projected average frequency of foreclosure (FOF) for the remaining balance of the 2005, 2006 and 2007 mortgage pools is 9.9%, 18.4% and 21% respectively.
  • The average loss severity (LS) expectations are 42.4% for 2005, 46.7% for 2006, and 49.4% for 2007.
  • Fitch is currently reviewing its rated Alt-A transactions and will be releasing updated ratings over the next several days. Due to increased loss expectations, particularly for the 2006 and 2007 vintages, Fitch will downgrade many senior bonds to below investment grade.
  • Fitch’s new ‘U.S. RMBS Alt-A Surveillance Criteria’, dated Dec. 15, 2008 can be found at ‘’ under the following headers:

Structured Finance >> RMBS >> Criteria Reports Contact: Vincent Barberio +1-212-908-0505 or Grant Bailey +1-212-908-0544, New York. Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email:


Tranches of the following jumbo residential mortgage-backed securities issued in 2006 and 2007 were impacted by Moody’s actions.

  • 264 classes from 13 J.P. Morgan transactions;
  • 209 certificates from 16 RFMSI transactions;
  • 188 tranches from seven RMBS issued by GSR;
  • 77 classes from 15 Wells Fargo Mortgage Backed Securities Trust securitizations;
  • 60 certificates from MASTR Asset Securitization Trust 2006-1 and 2006-2;
  • 50 tranches from 10 Thornburg transactions;
  • 31 certificates from four Citigroup deals;
  • 24 classes from five Citicorp securitizations;
  • 22 tranches from 12 Banc of America transactions;
  • 22 classes of Sequoia Mortgage Trust 2007-2, 2007-3 and 2007-4;
  • 21 certificates from five First Horizon Mortgage deals;
  • 21 classes from J.P. Morgan Mortgage Trust 2006-A4;
  • 17 tranches from Bear Stearns ARM Trust 2006-1, 2007-2 and 2007-4;
  • 15 classes of Merrill Lynch Mortgage Backed Securities Trust 2007-2, 2006-F1 and 2006-1;
  • 15 certificates from Prime Mortgage Trust 2006-2 and 2007-1; and
  • eight classes from GMACM Mortgage Loan Trust 2006-AR1.

But 2006 and 2007 weren’t the only jumbo vintages impacted by recent ratings actions.  Standard & Poor’s Ratings Services reported that it lowered ratings on hundreds of classes of jumbo transactions issued from 2002 through 2007.  Classes from the following RMBS were impacted by S&P’s actions:

  • Bank of America Mortgage 2002-E Trust;
  • Bear Stearns ARM Trust 2007-4;
  • Chase Mortgage Finance Trust Series 2007-A2;
  • CHL Mortgage Pass-Through Trust 2007-2, 2007-3 and 2007-4;
  • Citigroup Mortgage Loan Trust 2007-AR4;
  • CSMC Mortgage-Backed Trust 2007-1 and 2007-2;
  • First Horizon Mortgage Pass-Through Trust 2002-AR2 and 2003-AR1;
  • GSR Mortgage Loan Trust 2007-4F and 2007-AR1;
  • JPMorgan Mortgage Trust 2007-A3;
  • Lehman Mortgage Trust 2007-3 and 2007-5;
  • Merrill Lynch Mortgage Investors Trust MLCC 2007-2;
  • RFMSI Series 2007-S1 Trust, 2007-S3 Trust, 2007-S4 Trust, 2007-S5 Trust, 2007-SA1 Trust and 2007-SA2 Trust;
  • STARM Mortgage Loan Trust 2007-2 and 2007-3;
  • Structured Asset Mortgage Investments II Trust 2004-AR5; and
  • WaMu Mortgage Pass-Through Certificates Series 2007-HY4 Trust.

More Related Mr Mortgage Stories

27 Responses to “Fitch, Moody’s & S&P Continue to Trash Alt-A & Jumbos”

  1. If this is the 3rd inning of all the combined ball games….they will be giving away tickets for next season. Oh, sorry….there won’t be a next season. Seriously, sub prime crushed our entire financial system. What will Alt-A and even scarier still…PRIME do to us? Should we start foraging and stockpiling food now or after the long winter? I am with your thought process on this being financial Armageddon. So what can we do about it but pray?…..comments welcome.

  2. Have no fear as out govt will buy this new pile of toxic debt, too. But dont ask for any transparency on these level 3 etc…”assets”. Yup, we’re turning Japanese…..if we’re lucky.

  3. Honest Appraiser:

    – The ‘3rd’ inning remark is in line with what many non-mainstream ‘economists’ regard as our current station in the time frame of this implosion. So it’s quite apropos.

    – Alt-A & Prime, while larger in scope and financial dimension than sub-prime, are but dominoes in a line of crisis yet to make themselves known. Brings to mind the Ghost of what is yet to come (Ebenezer Scrooge), doesn’t it?

    – It is not so much what the aforementioned financial maladies have done and will do to us, as much as it is the closing chapter of the savings-averse and spend-thrift paradigm of personal and public economy that has become our standard of living.

    – As far as ‘foraging’ for food and such? I take that quite seriously and those with forward vision that read this forum would do well the same. Very few in this country have ever experienced the full effect of what economic ‘disruptions’ can do to a lifestyle. Supply-chain issues surrounding choked-off lines of credit (Baltic Dry Index movements are a good pulse tracker for this) and their subsequent shortages in a JIT environment would be an example.

    – Now, I’m not suggesting that all is lost and we might as well huddle together over a 55 gal. drum fire, but it pays to understand that what we perceive out there to be stable is only as stable as the next link in a highly vulnerable chain.

    – Here is what should give one pause, lest one think that your political leaders and finance engineers on the bridge have the wheel positioned just so to avoid a catastrophe: The FOIA request from Bloomberg to the Fed as to what happened to 2 $Trillion of swaps made with taxpayer funds, has just been blown off as ‘trade secrets’ that cannot (and likely will not) be disclosed.

    What scary things do you suppose they’re hiding…?

    At this pivotal point in time, while a family or individual still has the means to do so, a prudent but aggressive approach towards the following should be priority #1

    – If you’re in debt, reduce or eliminate it as much as possible.

    – Allocate funds to purchase/stockpile everyday items – you know what they are.

    – Trade a portion of your disposable cash for gold or silver bullion while that paper still has ‘value’. This will be your insurance as the inevitable slide of the dollar continues and accelerates in due course.

    – Above all, do not assume that a government agency or program is going to keep you afloat. Although I don’t agree with ‘walking’ in principle, I do understand that there may not be any better option in order for a family to preserve what savings they have left. And they’re going to need every last penny to get through what’s coming.

    Peace –


  4. I believe that you said quite some time ago that the governmental response would be worse than the financial crisis itself. I’m not sure that I would go that far, but it is clear that both are equally bad. Trillions being poured into corporate enterprises with no transparency and no accountability.

    Your belief that Barnacke is singing from the Japanese songbook is very insightful, rarely encountered elsewhere, and we are going to recognize, through the rear view mirror, that the bursting of the Japanese real estate bubble and ensuing deflation was not something culturally and economically unique to Japan, but a forewarning of more serious turmoil to come, as Japan was already deeply financially interwoven into the global economy at that time.

    A major problem back then, which has been allowed to intensify with the passage of time, was the persistence of the US current account deficit and Japanese (and later Chinese) current account surpluses that forestalled a more stable global trading environment through more Japanese and Chinese consumption and more US savings and manufacturing investment. Instead, the US became a bubble economy prone to wild swings in asset values associated with the extension of excess credit, while Japan and China remain dependent upon exports, requiring them to finance US consumption. Real estate values will continue to plummet until such time as prices are consistent with an economy that is going to experience painful contractions for the indefinite future as money is diverted from consumption to savings. Of course, that the best case scenario. The alternative is highly disruptive civil unrest.

  5. C.C….I hope you are wrong on the “what’s coming” scenerio. I know that AIG just sold 39 Billion (est. value) of MBS to the Govt. (taxpayers) for 19 Billion. I am sure that will be a windfall for us and the govt….JOKE. Really, what happens when the Alt-A hits the fan and is in full out liquidation mode? The Fed is out of ammo and the treasury coffers are empty. Do we just go with across the board write offs and convert to a one world currency? These are to global and interwoven to dissect and deconstruct.

  6. Admin

    I absolutely love this analogy;

    “Think of these as four different ball games going on simultaneously with Subprime being in the 7th inning, Alt-A in the bottom of the 3rd, Jumbo Prime in the 2nd, Prime conventional in the 1st and HELOCs a sideshow playing at all of the games. Overall, my best guess is that the mortgage implosion is somewhere in the 3rd inning if left to run its course naturally.”

    This really puts the whole mess into perspective, other than mentioning that the Sub Prime is little league in comparison to the other ball games in the early innings. That one is a money quote….

    As a side note on the economy in CA, I talked to my Longshore contact on the docks for an update. He tells me the Marine Exchange bookings for ship arrivals for the first six months of 2009 are down 30% from year ago levels. I am not going to take that at face value because I know many ships do not work that far in advance, but it is an indication of significant slowing in our number one employer, trade related jobs. I would expect less effect on the Port of Oakland because historically they have had a greater balance of export container ratios. He also said he unloaded a Toyota car carrier of 3,500 cars and only took up a small section of a lot and the lot was absolutely chock full of cars. I would expect heavy discounting to move these vehicles…

  7. Yeah, we will be taking this one in the pants, but it won’t be Armageddon. I heard that over 60% of the US owns their homes outright. Not everyone needs a loan to function. And when prices collapse, that is when the people with no debt will have a once in a lifetime opportunity to move on up.

  8. yeah, but what are the other 40% going to be up to?

  9. Why does a recession always bring out the survivalist in us? I’ve been hearing the save canned goods, get a gun and gold and hunker down talk for weeks now. I’m not saying we don’t have some serious problems but I’ve been living in countries where the system is marginal at best and you can always get services, what you want and when you want it. People just find ways to make ends meet again. You aren’t thinking starvation is really on the table here do you? During the depression we had a lot of rural poor. Eighty years later we have a pretty diverse skillset built up that makes money on industry that wasn’t even invented in 1930. Those people foster innovation and make money, pay too many taxes and that takes care of the rest. I beleive paying off any debt is good advise but I think I’ll leave that can of creame corn on the supermarket shelf until I need it.

  10. KurtA:

    With all due respect, you are welcome to leave as many cans of cream on the shelf as you desire. Also, I’m fully aware of the ‘Kook’ quotient built into my comments and likewise, responses such as yours. That’s Ok. I’m quite confident in my interpretation of what is and what lies ahead and as well, with a plan to proceed with prudence and preparedness.

    My comments and suggestions are worth the text you’re reading now. It will be up to each individual to decide how they’re going to interpret the data and events that continue to unfold as we progress into this ‘recession’.

    I would only add this: Economic data – graphs, charts, comparisons, etc., many of which, the Admin himself has posted here on this blog, are Firsts in U.S. economic history. That should tell the wise and prudent that perhaps a bit of wise preparation is in order.

    Peace –


  11. KurtA Said:

    “Why does a recession always bring out the survivalist in us?”

    Because the house next door got burglarized? Because there are now cars driving slow through the neighborhood scoping things out? Because the gardener got his lawnmower stolen in broad daylight across the street? Because these things stopped in the early 90’s and are now coming back to haunt us? Because those of us who remember hard recessions know that the “safe zones” shrink considerably. Because you now have to think on how not to be a victim in your daily life as a matter of course. Complacent attitudes are corrected by hard lessons.

  12. Mr Mortgage,
    Everything that Whitney Tilson said about the mortgage industry problems in 60 minutes has been more eloquently stated by you for many many months. It sounded like this guy was reading a script from your blog. He was described in CBS news as “one of the best guides to the danger ahead”.
    My vote goes for you. You would have been far more eloquent and knowledgeable than Mr. Tilson.
    Bill Zielinski

  13. Remember the 30’s depression did have rural farm areas. Today….most folks are in cities where that food supply will become scarce, unless it gets shipped in. Fewer farms today than the 30’s. City life will be hit hardest…no matter how bad it gets.

  14. Imploding mortgages are going to be more and more a fact of life as we go through 2009. This is going to have a tremendously negative impact on the economy and home prices will continue to plummet. Nothing the Feds can do will have any significant effect on slowing down housings demise.

  15. I would not be surprised to see these talked about works projects get underway ASAP. They’re shovel-jobs, but they’ll keep the masses in weekly paycheck instead of rioting for more food stamps. But the real loss is all the FIRE jobs that are going bye-bye for a long time.

  16. Bill Z.

    Everyone on this blog has been aware of the 60 minutes “story” since at least April/May. That gives the blog about 7/8 months lead time over mainstream….. The focus was Florida. Maybe they are saving Mr. M for the “West Side Story”… You have to admit, the fake paparazzi was a nice touch to the story.

    It seems quite clear that we are going to have several years of inventory build to work through. Now why does the Mayan calender stop on December 21, 2012? Maybe that is the bottom call?

  17. Regarding the fake paparazzi hired to augment FL condo sales: How dumb did you have to be to have thought that the paparazzi were there to see you, a plumbing contractor from Toledo, buying a condo in Naples? Did you think that if you were lucky you would get a glimpse of Britney’s vag?

  18. What a useless bunch of numbskulls jumping out in front of a parade, er…disaster:

    Mr. Mortgage, what are they, like 18 months later than you? Maybe they only report the truth when it’s fashionable.

  19. I believe the percentage of homes with NO mortgage is not 60% but actually 30%. If you look at the graph of neg-am posted by Mr Mortgage, that leaves the majority of the 70% that have a mortgage in deep doo-doo. If the houses continue to decline and borrowers continue to default….2009-2012 could be some really rough years. The banks are growing more sick each day because they are loosing performing assets to foreclosure, not making new loans, and taking a bath on the sale of the asset (REO). If banks don’t lend at higher interest rates, their balance sheets weaken…reguardless of the economic environment. Banks are taking a double whammy now….and DESERVE every bit of it. However, commerce is stalled out and there is no emergency roadside assistance to give us a jump start. The FED is nearly out of bullets and the Treasury has been out of cash backed by an actual asset for decades.

  20. Note to 60 minutes and Mr. Tilson, welcome to the programme.

    Maybe Mr. Mortgage, in 6-9 months, they will be discussing/proposing principal reductions as a possible path out of this mess.

    Keep up the leading work.

  21. Nice job Mr. Mort. Since you extrapolate the numbers from RE and extend them to banking and further on to the GSEs, I’m sure if there were any good numbers you would report the good news.

    The leave-cream-corn-behind person must still have faith in the system. When that person wavers, we are all doomed.

  22. I swear I look for good news but I am not about to report false bottoms as good news. I believe its relatively simple to predict where housing will end up and between then and now, everything has to be looked at with suspect. Then when you drill down into those ideas sure enough you find the smoking gun proving that the light at the end of the tunnel is indeed a train.

  23. I am encouraged about energy given the fact that the CA roads are so packed in comparison to two months ago it is rediculous. I bought oil and gas related long plays a few weeks back. How this relates to the macro economy is a different story. Renters may have more money to spend outside of debt.

  24. Fed approaches the equivalent of a zero interest rate policy today, confirming Mr. Mortgage’s perspective. Why is it that I don’t find consider this to be nearly as good news as the stock market?

  25. Richard,

    Here is my Bertdilbert high school dropout take on today’s action. As you know, the Fed went zero to .25 on the Fed funds rate which is historic. I am going to let Mr. M expound on what this means to home loans and interest rates, that is his expertise. Here is my take on the rest of the story…

    First off, there has been this talk of “dollar bubble” floating about town. For any of you that heard this, it is pure nonsense. What do we know about bubbles? One thing is prices go up. Second thing we know is that they are fueled by greed. So let’s move to the 3 month treasury marketplace where people have been piling in for zero % interest. Nope, no greed there! What you witnessed was a flight to safety otherwise known as “fear”. See the difference? No bubble. What we do have though is a concentration of assets. Assets that are frozen by fear, assets that are not making “economy”.

    At the same time however, one should recognize that this money can move swiftly if something is deemed to provide lesser risk. It can also be “forced out” if dollars are suddenly perceived to become risky. Calling that a bubble however is about as accurate as the gal on moneyvison saying the housing market bottomed with an uptick on sales – while prices hit a new low. Let’s see how this plays out though into the hand we were dealt today.

    First the Fed’s position. The Fed, and when I say Fed, I mean the Open Market Committee, is seeing the exact same thing we are seeing. They look at the treasury market and can see the fear and latching on to dollars for safety. The same exact thing is happening in the less visible private lives of Americans. They to are clinging to safety holding onto dollars.

    This frugalness that has suddenly jumped into lives of everyday Americans is like a virus to the economy. If people do not spend money, we in essence have no economy. If 70% of our economy is consumers buying stuff, it does not take a rocket genius to figure out that tightfisting is going to throw us into a hotbed of high crime and 25% unemployment.

    The Fed response to tightfisting? Bring out the sledge hammer and smack fear into dollar holdings! Today’s monetary response send a clear message that CD’s Money Market as well as Treasuries are going to be paying you zilch. But they did yet another thing to scare money from out of hiding. They did something to beat money out of the mattress, out of the safety deposit box and out of hiding, wherever that may be. They said in Fedspeak code that your money is about to become worthless.

    Bernanke let on that the Fed had other tricks up it’s sleeves that it could use to combat deflation. Of course they don’t want to scare anybody by actually using the “D” word in the statement, rather they say things like “inflation pressures have diminished appreciably”. How about telling it like it really is, that the deflation suction has raised its ugly head!

    The Fed let it be known today that anything and everything will be placed on its balance sheet. I have no doubt that this is going to be inclusive of monetization of treasuries and could well entail currency swaps. If you have a pair of dirty socks, send them to the Fed, they will stick that on the balance sheet too. In short, your dollars are going to be depreciated against not only other currencies, but against itself through forced inflation.

    Why has the Fed and Treasury taken this approach? For one, they cannot force overinflated dollar denominated asset prices up. They can however devalue the dollar and bring asset contractual agreements back to even. Heck, we may not have to worry about principle reduction on mortgage paper, we might just bring the inflated devalued dollar price of the home back up to the mortgage balance!

    Today’s accomplishments by the Fed.

    1. Placed fear into dollar holders to spend the money and pull it out of the mattress.
    2. The dollar will devalue significantly.
    3. Euro will likely be forced up, this is our primary competitor currency.
    4. Money to flee dollar holdings – flight to stocks, precious metals, commodities, other currencies.
    5. Potential future for real estate as inflation hedge.
    6. Potential for taking highly inflationary course to satisfy asset valuation balance sheet problems
    7. Expect volatility in the dollar markets, dollar can now be carry traded.
    8. Stock up on creamed corn….

    Now where are them fellers that were screaming “dollar parity” two weeks ago… LOL

  26. I appreciate the response, and, yes, I understand, but the major problem is that the Fed action screams “FEAR” to everyone else, reinforcing and intensifying their anxiety. If the Fed had done this back in, say, June or July, the public would have perceived it as a decisive action, but now, people see it as the Fed merely recognizing what they have known for the last 2 or 3 months, namely that the world is going into a deflationary spiral.

    As numerous commenters at Calculated Risk have observed, the Fed is punishing savers and investors, while continuing in a Sisyphean effort to bail out speculators by attempting to force the rest of us to direct our money into their failed enterprises, such as, say, real estate and the issuance of CDOs. The Fed is, in effect, telling us there is no way to avoid a global depression unless we rescue the people who caused it through the use of excessive leverage to engage in speculative investments.

    In other words, the Fed is confirming to all that it will expend the entire wealth of this society in a misquided effort to salvage the bubble economy of the last 15 years. Or, to put it more crudely, the Fed is providing the leverage that capital markets have taken away. It does nothing to induce confidence among the populace, and, if anything, results in even greater cynicism and a tendency to hold what’s left of one’s money even more closely to the vest.

    Absent the institution of reforms, accountability and greater transparency in the global financial sector, I believe that the deflationary cycle will only intensify. To date, there is one thing that Paulson and Bernanke have been consistent about, their unwillingness to take any action to require it. Because if they did, the curtain would fall upon an era of corruption that is even more outsized than the Gilded Age.

  27. Richard

    Part of the problem is that the Fed holds their FOMC meeting and takes regional reports from the presidents of the 12 reserve banks reporting on conditions in their region. They bring out their blue and green book and review the stats. The problem is that they are moving like slugs and not able to use any predictive powers but are reactionary to the crisis.

    Meanwhile we have congressmen juggling the three autos with 3 million jobs on the right, while Obama is juggling 2 million jobs and energy saving light bulbs for children on the left. Everybody can tell that we come up with a million jobs short.

    For some strange reason, nothing at all can happen from now until Obama is sworn in.

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