Subprime Defaults Exceed 25%, FBR Says

The default rate on securitized subprime loans hit 25.2% in December, up 185 bp from that of the previous month, but defaults on alternative-A loans are also surging, according to a report by Friedman Billings Ramsey Investment Management. Defaults on alt-A mortgages jumped to 8.26% in January, up 106 basis points from the level in December and 250 bps from that of November. Alt-A borrowers have high credit scores, but are generally self-employed and highly leveraged. There are 2.8 million securitized alt-A loans totaling $839 billion, and nearly 20% of the loans are secured by second homes and investment properties. The alt-A world is vulnerable in today's market with falling house prices and deteriorating labor market conditions. "It is really a double-whammy for alt-A," said FBRIM managing director Michael Youngblood. (The default rate includes loans 90 days or more past due, in foreclosure, and real estate owned.) FBRIM is a subsidiary of Friedman Billings Ramsey, which can be found online at http://www.fbr.com.