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Alternative Lifestyles

2002 Alt-A securitizations to reach record $41 billion

November 5, 2002

By CHRISTY ROBINSON


Alt-A mortgage securitizations should reach a record-breaking $41 billion by the end of 2002, according to a report by Moody's Investors Service. The mortgage loans also are expected to increase about 50% over 2001's volume.

"Just like other mortgage loans, low interest rates are fueling Alt-A issuance," said assistant vice president/analyst Joseph Grohotolski.

Alt-A mortgage loans are a credit-quality rung below prime quality jumbo, but better than a B or C subprime loan.

"Alt-A mortgages are made to A-quality borrowers, as with other prime mortgage loans," said Terry Osterweil, director of Residential Mortgages at Standard & Poor's. "But the loans have characteristics that make them nonconforming under typical Fannie Mae and Freddie Mac guidelines. For instance, the loan-to-value (LTV) ratios may be higher than usual, the loans may have certain limited documentation, or the homes may be vacation or investor properties with higher LTV ratios," he said in a 2001 announcement, when S&P began assessing the risk of such loans.

In the average loan pool backing recent Alt-A securitizations, FICO scores have ranged from 675 to 705, the report said. In addition, investor and multifamily properties have ranged from 5% to 35%, full documentation loans have often been significantly less than 90% and the LTV has ranged from 75% to 85%.

In November 2001, The Wall Street Journal reported a tightening of credit standards for borrowers that utilize no-income verification loans, jumbo loans, and subprime loans. The changes reflected concerns that rising unemployment and slowing home-price appreciation would result in more mortgage defaults in the future.

The publication reported that Chase Manhattan Mortgage had raised its minimum credit score requirements to 680 from 660, and Greenpoint Mortgage had raised its minimum credit score on no-documentation loans to 660 from 640.

"The AAA credit enhancement for Alt-A securitizations that we've been seeing over the past two quarters has been between 4.75% and 9.00%," Moody's Grohotolski said. "Issues driving this credit enhancement are often very specific in terms of originator practices."

The report, "What's In A Name -- Divergent Characteristics, Performance Among Alt-A Securitizations," was released Monday.

Christy Robinson is the editor of MortgageDaily.com. She received a bachelor's degree in news-editorial journalism from The University of Texas at Arlington. Her work has previously been published in The Dallas Morning News.

email Christy at: [email protected]



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