Mortgage Daily Logo

Subprime Performance to Worsen

Mortgage News

Subprime Performance to Worsen

Fitch report analyzes option ARMs

December 7, 2005

By COCO SALAZAR

photo of Coco Salazar
As rates rise over the next year, Fitch Ratings sees subprime delinquencies rising.

The “excellent” performance of subprime mortgage assets over the last two years will moderate as anticipated higher rates and slower home price growth will curtail cash-out refinancing and cause payment shock among some adjustable-rate mortgage borrowers, the investment analyst said in its 2006 outlook report released Tuesday.

ARMs accounted for 60% of subprime mortgages originated and securitized in 2003, while the share reached 80% as of Sept. 30, 2005 — with hybrid ARMs and hybrid interest-only ARMs dominating, Fitch said. Borrowers from 2003 vintages as well as some 2004 borrowers will be due for a rate increase next year.

ARM share with all loans, including conforming and subprime, is one-third, the Mortgage Bankers Association of America reports.

High-cost loan delinquencies may rise as much as 10 percent to 15 percent from current levels, Fitch believes. “Borrowers will experience payment increases on ARM loans … and certain borrowers will no longer have the ability to tap their homes for additional cash,” Fitch said in the report.

“Despite this, high prepayments and strong loss performance to date have allowed bond credit enhancement to build rapidly and should help protect bonds from the expected decline in loan performance,” Fitch said in an announcement. The report indicates the subprime sector’s ratings will be stable throughout the year.

The report also noted the subprime market is positioned for increased consolidation in 2006, as smaller originators “continue to feel squeezed due to high origination costs and prohibitive whole loan execution.”

In the prime and Alt-A sectors, performance is expected to be stable in the new year and ratings positive. Refinances are still expected to slow, but Fitch sees that the prospect of higher rates on ARMs will increase the percentage of refinancings into fixed rate mortgages, option ARMs and 40 year mortgages, according to the report.

Fitch expects some portion of the 2003 and 2004 subprime borrowers approaching a rate reset this year to refinance into fixed-rate mortgages with 40 year amortization schedules or into longer term ARMs, the report said.


Coco Salazar is an assistant editor and staff writer for MortgageDaily.com.e-mail: MortgageWriter@aol.com


 

Coco Salazar is an assistant editor and staff writer for MortgageDaily.com. e-mail: [email protected]

Related Posts

NewDay USA CEO Rob Posner Expects 10% Increase in 2019 Mortgage Loan Volume

There is No Such Thing as a Free House …

Over the past several years, those who service loans in the State of Washington(1) have seen a dramatic rise in the number of lawsuits in which delinquent borrowers seek to quiet title to their homes on the grounds that lenders are barred from foreclosing based on...

NewDay USA CEO Rob Posner Expects 10% Increase in 2019 Mortgage Loan Volume

The Mortgage Graveyard 2018 Archives

The Mortgage Graveyard 2018 Archives Failed, Struggling and Acquired Mortgage-Related Companies Non-Bank Closures 3 Bank Failures (FDIC) 0 Credit Union Failures 0 Total Mortgage-Related Failures 3  

NewDay USA CEO Rob Posner Expects 10% Increase in 2019 Mortgage Loan Volume

Sample E-Mail

Sample E-Mail   Covering the Real Estate Finance Since 1999  Mortgage Industry News free news content | view headlines online  Advertorial Text Ad This ad includes a linked bold headline of up to 50 characters and up to 100 words of text. The ad can be...

NewDay USA CEO Rob Posner Expects 10% Increase in 2019 Mortgage Loan Volume

Mortgage Servicer Portfolios

Mortgage Servicer Portfolios servicing news | mortgages outstanding statistics | foreclosure news   Servicing Portfolios as of 2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 Residential Servicing Portfolios by Servicer...

Popular posts

How Long Does It Take to Refinance a Mortgage
How Long Does It Take to Refinance a Mortgage

So, you’re interested in refinancing your mortgage. Maybe you want some extra capital to do that home project you’ve always dreamed of, interest rates are nearing record lows, or you want to start consolidating debt. Regardless of the motivation behind the refinance,...

How Does Refinancing a Mortgage Work
How Does Refinancing a Mortgage Work

A home purchase is considered an investment, and a robust one at that. Savvy owners are constantly looking for new ways to reduce debt, save money, pay less in interest, and ultimately build equity. Refinancing is one way to leverage your investment and do just that....

What Does It Mean to Refinance Your Home
What Does It Mean to Refinance Your Home

You can think of refinancing your mortgage as a debt redo. Essentially, you’ll swap out the existing loan for a new one - ideally with better terms and conditions. Only this time it could help you save money on high mortgage payments, rather than just borrow it....

Setting up the Utilities in My New House
Setting up the Utilities in My New House

All the tedious, time-consuming home closing documents have been signed, sealed, and delivered. Your belongings are packed into what seems like a million boxes and you have a solid plan to haul all your existing furniture to the new place. Just as your boxes and...

When Is My First Mortgage Payment Due?
When Is My First Mortgage Payment Due?

Navigating your way through a brand new mortgage loan can be a difficult task, especially for first time homeowners. After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first mortgage...

Newsletter

Don’t worry, we don’t spam

calculate your monthly mortgage payment

Related Topics

Helpful Links

Daily mortgage rate trends

Best mortgage lenders

First-time homebuyers programs by state

Loan limits by state

Types of mortgages

APR vs interest rate

Understanding PMI