FDIC Cites Rising Alt-A Default Rate

Nearly 7% of alternative-A mortgages originated in the first half of 2007 are already 90 days or more delinquent or in foreclosure, according to the Federal Deposit Insurance Corp. The early default rate for alt-A mortgages originated in 2006 was only 3.59%, according to an analysis by FDIC using LoanPerformance data on private-label securities. FDIC researchers suspect that the deterioration in the performance of the 2007 vintage largely reflects conditions in housing markets rather than underwriting. Meanwhile, investors will be looking to see how the $300 billion in alt-A mortgages guaranteed by Fannie Mae performed in the second quarter when the mortgage giant reports its earnings Friday morning. These stated-income loans, which are generally made to self-employed borrowers with high credit scores, constituted 12% of Fannie's single-family book of businesses in the first quarter and were responsible for 43% of its credit losses. Fannie executives maintain that the default rate on their alt-A loans is "approximately one half" the default rate on the overall private-label alt-A market.