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Alt-A Credit Quality Weakens

New York-Negative equity and unemployment pressures have caused Fitch Ratings to take various ratings actions on 767 alternative-A credit residential mortgage-backed securities deals.

"Home price declines have resulted in negative home equity for approximately half of the remaining performing borrowers in the 2005-2007 vintages and approximately 10% of the remaining performing borrowers for all transactions prior to 2005," said Fitch managing director Vincent Barberio.

"Unemployment is up significantly since our last alt-A rating review, particularly in California where the unemployment rate has jumped from 8% to a record-high of 11.6%," he said. Approximately 36% of borrowers in Fitch-rated alt-A pools are in California.

Average updated expected collateral losses as a percentage of the remaining pool balance for alt-A pools now range from as high as 29% for the 2007 vintage to as low as 4% for pre-2005 vintages.

The updated average expected collateral losses as a percentage of the original pool balance for alt-A pools now range from 26% for the 2007 vintage to 1% for pre-2005 vintages.

Expectations for average collateral losses for 2006 alt-A pools are 18% when expressed as a percentage of the original pool balance and 24% when expressed as a percentage of the remaining pool balance.

For 2005 vintage alt-A pools, expected average collateral losses are 14% when expressed as a percentage of remaining pool balance and 8% when expressed as a percentage of original pool balance.

"Although net roll-rates (of performing borrowers into a delinquency status) have improved from the seasonal high in December, the net roll-rates for both the pre-2005 and 2005-2007 vintage groups in the first half of 20009 were approximately double that experienced during the same period in 2008 when modified loans are excluded," Fitch said.

The number of alt-A loan mods completed "has risen but remains relatively limited to date," Fitch said. The company estimates 2% of current borrowers in its alt-A pools have had their loan terms modified and that the redefault rate for alt-A mods after 12 months is above 50%.

Alt-A loss severities rose to an average of 57% for 2005-2007 vintages and to 47% for pre-2005 vintages in the second quarter from 41% and 38%, respectively.

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