The 2007 vintage isn’t the only Alt-A vintage facing problems, of course: 19.3 percent of borrowers with loans originated in 2006 were more than 60 days delinquent at the end of April, a jump of nearly 10 percent from March. Cumulative losses percentages for 2006 vintage Alt-A first liens continued what Clayton analysts called a “concerning upward trend,” with losses for 2006 issues running at more than three times the pace set by the 2004 and 2005 issues.
The troubles in Alt-A are appearing despite the fact that very few borrowers in any vintage are yet to face a strong wave of rate-reset activity. The graph to the right shows that, if anything, lenders and policymakers should be concerned about a wave of pending Alt-A resets that are looming in the back half of 2009.
That wave looming wave of resets may be particularly troubling, given the current U.S. interest rate and LIBOR outlook held by most economists and bank officials; most see interest rates flat to increasing over that time frame, both within the U.S. and abroad, a pattern that could bode poorly for borrowers facing rate adjustments.
The good news is that one-month roll rates — which measure the transition of loans from one stage to the next (i.e., performing to delinquent, delinquent to severely delinquent, etc.) — for nearly every Alt-A vintage decreased for the month, with only the 2003 vintage showing an increase. That sort of respite may end up being short lived, however, given the sharp increase in deliqnuencies and continued downward trending of cure rates for troubled borrowers.
Subprime woes, renewed?
Subprime mortgages aren’t sexy to most financial media any more, and numerous reports lately have suggested that the problem in subprime mortgages has largely been mitigated by lower interest rates that have limited payment shock for the most vulnerable borrowers.
All of which is true; but that shouldn’t hide the fact that 60 day delinquencies in the 2006 subprime vintage rose 5.4 percent in April and now stand at 34.6 percent of remaining collateral; in the 2007 vintage, 23.1 percent of collateral is more than 60 days in arrears, as well.
While resets are an immediate problem, there are yet a good number of resets that need to work their way out of the financial system (see graph to the right).
Perhaps more telling, toll rates increased in April on both subprime first and second liens after sharp declines in recent months, marking perhaps a renewed cycle for troubled subprime borrowers. Many media pundits have pointed to declining roll rates as evidence that the worst of the subprime crisis is behind us; the jump in rolls might suggest otherwise.