The credit performance of alternative-A and subprime loans has improved over the past year and concerns about an "erosion" of underwriting standards may be misplaced, according to researchers at the investment banking firm Friedman Billings Ramsey & Co.An FBR report shows that serious delinquency rates on alt-A and subprime loans declined significantly over the 12 months ending in May and in a big majority of metropolitan statistical areas (262 out of 331). Based on the performance of nonagency securitized loans, serious delinquency rates on alt-A loans declined from 1.76% in May 2004 to 0.89% as of May 31 and on subprime loans from 6.67% to 5.37%. Michael Youngblood, FBR managing director of asset-backed securities research, attributes the credit performance to improving labor markets across most of the United States. "This is direct testimony to a strong economy and indirect testimony that there is no widespread erosion in underwriting criteria," Mr. Youngblood said. The report also identifies 58 MSAs in 16 states with persistently high serious delinquency rates.
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Test your knowledge of the biggest mortgage headlines of the week. No. 2 pencil not required!
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