Everyone knows about the financial trouble caused by failed subprime loans, but trailing right behind that storm is another one called Alt-A. These loans weren’t given to people with terrible credit, but their delinquency rate is proving to be almost as high, and rate resets for these loans are due to peak later this year. For more on this, read the following article from HousingWire.
Early evidence of at least some relative improvement among securitized subprime loans likely won’t matter much to mortgage markets overall, thanks to fast-increasing pain in other sectors of the mortgage market. According to early surveillance data released Friday by Clayton Holdings, Inc., both subprime and Alt-A delinquencies continue to grow, but patterns within overall delinquency trends show just where the pain in the mortgage market really has shifted to.
First, the good news. The subprime credit sector may actually be seeing some pressure ease somewhat, according to Clayton data, which found that the subprime 30-day delinquency rate as a percentage of active balance has actually fallen in the past several months. (Yes, really).
The firm said that for loans it monitors, the U.S. subprime 30-day delinquency rate fell to 5.96% at the end of February, compared to 6.54% in Dec. 2008. Part of that seems to be due to soaring repayments, as one month CPRs (prepayment rates) soared as much as 31% during March, depending on vintage. But the easing of early delinquencies among subprime borrowers could also reflect a seasonal trend, too — for those unversed in mortgage servicing, early delinquencies tend to spike during the holiday season, ostensibly as distracted borrowers miss payments or allocate their money towards holiday spending rather than mortgage payments.
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That’s pretty much all of the good news.
While early-stage delinquencies among subprime borrowers have been easing in recent months, those subprime borrowers already in trouble are seeing their woes multiply quickly. Clayton’s data found that subprime loans in any stage of delinquency rose to 38.0% of active balance by the end of February, up slightly from 36.7% at the end of last year. Increases in late-stage delinquencies and foreclosure starts are more than swamping any decreases in new defaults among subprime borrowers, leading to the aggregate increase in the overall default rate, Clayton noted. In California, for example, subprime 90+ day DQs excluding foreclosures and REO are now touching nearly 12%, roughly double year-ago levels.
Alt-A borrowers don’t have nearly as nuanced a story, relative to their subprime brethren. Among Alt-A loans monitored by Clayton, a simple phrase sums up most recent loan performance: from bad to far worse. A full 26% of those Alt-A loans monitored by the firm were in some stage of delinquency at the end of February, up dramatically from one year earlier, numbers that are looking increasingly subprime-like. More pain in this loan category may appear on the horizon soon, too, with the percentage of active Alt-A loans facing rate changes set to spike beginning in October of this year, Clayton’s data showed.
Want to see evidence of how rough things really are in Alt-A? Among 2007 Alt-A first liens monitored by Clayton, 33.58% are 60+ days delinquent, up roughly 5 percent from January 2009. And that increase came despite a 2.1% jump in prepayment rates, a 14.89% decrease in roll rates, and a 25% increase in the cure rate. (Think on that for a minute: cures are up, prepays are up, rolls are down — but 60+ day DQs are still rising anyway.)
The data is published in the firm’s monthly InFront RMBS report. For more information, please visit http://www.clayton.com.
This article has been reposted from HousingWire. View the article on HousingWire’s mortgage finance news website here.