Alt-A lending is hot, and some dominant players have emerged in the sector -- which is expected to grow this year even as other areas of lending slow down.
The Alt-A market was the fastest-growing sector in the RMBS market in 2004 and shows no signs of cooling down, according to RMBS trends reports by Standard & Poor's. RMBS issuance reportedly surged to $158.6 billion -- 114% better than 2003.
Among the predominant factors cited for contributing to the growth were the introduction of Alt-A interest-only loans, and a continued use of "verbal verification" or "no-documentation" loans as well as investor property loans.
S&P said it rated approximately $142 billion in Alt-A transactions last year -- compared to approximately $61 billion the previous year.
The sector has performed well also.
So far this year, rated prime Alt-A transactions in the first quarter received 51 performance-related upgrades -- with the most common raise being to 'AAA' -- which was the third highest after prime jumbo classes' 234 improved ratings and subprime transactions' 99, S&P said.
Growth in the Alt-A market is expected to come from traditional subprime borrowers trading up in credit, prime lenders looking for other niches, and the continued increase in alternative document loans, the ratings agency said.
The annual "explosive growth" experienced in Alt-A RMBS was aided by Countrywide Financial's 45 Alt-A issuances totaling nearly $25 billion -- up 101.6% from 2003. Countrywide was the largest Alt-A issuer with 15.7% of the market share, according to an e-mailed statement from S&P.
While Impac's 15 deals totaling $21.4 billion captured the second largest market share -- 13.5% -- the subprime lender had the biggest annual volume growth -- 212.9% better than 2003 -- amongst the top 10 Alt-A players, the statement said.
Third in line was reportedly Credit Suisse First Boston/ABSC with 13 Alt-A deals totaling $13.8 billion, a 47.9% increase from the previous year.
The No. 4 Alt-A issuer was IndyMac with 27 deals amounting to $13.6 billion -- the 160.6% annual improvement was the second best after Impac, S&P said.
Bear Stearns Alt-A issuance volume of nearly $13.5 billion was the fifth largest, according to the statement, marking an 81.4% annual growth and comprised of 22 deals.
The remaining top 10 Alt-A issuers in 2004 were UBS Warburg, with 27 deals amounting to $13.2 billion; newcomer American Home Mortgage, with 6 transactions nearing $7.9 billion; Lehman Brothers, with 23 deals adding up to $7.3 billion; GMAC-RFC, with 22 for a total of $6.6 billion; and Bank of America, with 16 deals totaling $5.9 billion, according to S&P.