Loan-to-value ratios in excess of 100 percent are far more prevalent on loans included in private-label securitizations than the overall universe of residential mortgages. The outlook is for further deterioration.
A report last month from CoreLogic indicated that 22.5 percent of all U.S. home loans had negative equity in the second quarter. That worked out to 10.9 million mortgages.
But a report Wednesday from Fitch Ratings said that when considering only prime loans included in private-label residential mortgage-backed securities, the share of loans with LTVs higher than 100 percent jumped to more than a third.
And the scenario is likely to worsen.
“The sputtering U.S. housing market will result in more prime borrowers being pushed further underwater on their mortgages,” the New York-based ratings agency stated in the report.
Fitch Managing Director Grant Bailey said that home prices are likely to worsen before they get better — with another 10 percent decline forecasted.
Factoring in further declines, Bailey predicts that the share of upside-down borrowers in private-label securitizations will jump to half.
In addition, serious delinquency on non-agency securitized loans to prime borrowers is at a whopping 12 percent.
The grim outlook had Fitch downgrading 42 percent of prime RMBS, with borrower equity cited as the driving factor for the downgrades.
