|Rapidly deteriorating performance on Alternative-A loans is prompting one ratings agency to warn that widespread downgrades are possible on Alt-A residential mortgage-backed securities.
As of October, delinquency of at least 90 days on Alt-A loans backing securitizations averaged 20.3 percent on the 2006 vintage, rising from 16.9 percent six months earlier, Moody's Investors Service reported today. For the 2007 Alt-A vintage, delinquency averaged 17.5 percent last month, rising from 12.2 percent.
But Moody's said prepayment rates are at historical lows -- averaging in the mid to high single digits -- and are expected to remain depressed in the near term in light of a tight credit environment and declining home-equity.
"Given the lack of pool seasoning, cumulative losses have not yet risen as steeply as delinquencies," the ratings agency stated. "However, many pools are starting to show a sharp increase in the rate of loss realization. As the pace of liquidations has picked up, the performance data suggests worsening loss severities."
Alt-A loans with subprime credit are performing more badly than those with near-prime credit.
Moody's noted that when Alt-A loans include an option adjustable-rate mortgage, delinquency outpaces that of pools without option-ARMs. This was attributed to weaker loan-to-values caused by negative amortization.
The New York-based firm said it plans to review ratings on Alt-A transactions over the coming months.
"Given the marked deterioration in recent performance, the expectation is that there will be further negative rating actions and in some cases, multi-notch downgrades," the announcement said.