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2006 Jumbo, Alt-A Performance Deteriorates

S&P releases 2 reports

June 26, 2007


The performance of Alt-A and jumbo loans backing 2006 vintage securitizations continued to deteriorate. Nearly half of first quarter jumbo issuances were backed by California transactions.

Excluding pay option adjustable-rate mortgages, the share of Alt-A loans seasoned 14 months and delinquent 90 days or more was 4.21 percent, Standard & Poor's said in report released today. That figure is 2.5 times higher than the 2005 vintage was at the same seasoning level and more than four time higher than 2004 deals.

S&P's figures are based on the transactions it rates.

"The most disconcerting trend is how quickly the performance of these delinquent borrowers has deteriorated," S&P said. "We continue to see migration from 60-plus-day to 90-plus-day delinquencies within the 2006 vintage, suggesting that homeowners who experience early delinquencies are finding it increasingly difficult to refinance or work out problems, as opposed to being able to 'cure' falling behind on payments."

The New York-based ratings agency blamed the higher 2006 delinquencies on riskier borrowers -- many with high loan-to-values and limited income verification.

"Throughout 2005 and 2006, Standard & Poor's Ratings Services highlighted how the expansion of credit parameters in underwriters' lending decisions was contributing to a riskier Alt-A homeowner profile," the agency claimed.

Efforts this year to avoid foreclosure by refinancing are being hindered by weak real estate prices and tighter lending guidelines, S&P noted.

Another S&P report indicated prime jumbo loans backing 2006 vintage securitizations and seasoned 12 months had a 30-day or greater delinquency level of 2.2 percent -- approaching levels not seen since the 2000 vintage at 12-months seasoning. Delinquency of 90 days or more is at 0.70 percent -- eclipsing the levels seen in all years since 2000.

"Although the increase in delinquencies and losses has been pronounced for the recent 2006 vintage, overall cumulative losses have remained relatively low," the RMBS Trends report said.

Interest-only mortgages accounted for 16 percent of jumbo issuances during the first quarter, almost doubling from 2004, S&P reported. Jumbo loans with simultaneous second mortgages represented one-third of first quarter activity, increasing each of the past six years. Combined LTVs, however, have actually fallen almost 8 percent since 2000.

The weighted-average FICO score for first quarter jumbo transactions was 740, while the weighted average LTV was 70 percent, the data indicated. ARMs accounted for 53 percent of the period's activity -- dropping from 73 percent in 2004, and 43 percent of first quarter loans were for home purchases. More than 46 percent of the properties securing first quarter transactions were in California, while another 19 percent were New York deals.

"These loan characteristics present a strong credit profile for prime jumbo loans," S&P stated.

S&P projects ARM share on jumbo loans will continue to drop -- though the recent widening spread between ARMs and fixed rates makes that projection less likely.

The share of jumbo mortgages that are full-documentation -- 24 months' income verification -- has fallen from 70 percent in 2000 to 35 percent in the first quarter, the report indicated.

"Although certain layered risk characteristics such as simultaneous seconds and higher CLTVs have increased in prime jumbo loans in recent years, the impact on performance hasn't been as dramatic as experienced in the subprime market," S&P announced. "This is primarily due to the better credit quality of prime jumbo borrower."

The jumbo issuers with most first quarter fixed-rate deals were CHL Mortgage Pass-Through with 6 transactions, and Chase Mortgage Finance Trust, Credit Suisse First Boston and Residential Funding Mortgage Securities I Inc. -- with six transactions each, according to the report. The biggest ARM jumbo issuers were Washington Mutual Bank with five deals, JPMorgan Chase Bank with two deals and Residential Funding Mortgage Securities I Inc. with two deals.

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com.

e-mail: [email protected]

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