Mortgage Daily Logo

Subprime Market Correction

Mortgage News


Subprime Market Correction

S&P releases RMBS report

March 5, 2007


Issuance of subprime mortgage-backed securities was down last quarter and is headed lower, according to a new report from a major ratings analyst. Meanwhile, some evidence exists that underwriting standards have been tightened.

“The appetite for U.S. subprime loans from the secondary market has exceeded demand in recent quarters, encouraging an erosion in underwriting standards,” Standard and Poor’s Rating Services said in its report U.S. Subprime Market Continues Correction As Issuers Strengthen Underwriting Standards released today.

Seeking evidence that underwriting standards are now being tightened, S&P said that while some documentation improvements have occurred — “other results remain mixed.”

“Affordability products within the subprime market continue to evolve as longer-term loans remain popular,” said George Kimmel, an RMBS group director, in the statement.

The increase in longer-term products came at the expense of traditional amortizing 30-year loans, the report said.

FICO scores reportedly remained mostly unchanged from the third to the fourth quarter, according to S&P. Loans with alternative and stated income documentation declined — with a pickup noted in loans with 12 to 23 months of documentation. FICOs for refinance and cashout transactions were marginally higher than a year earlier while purchase transaction FICOs were flat.

The New York-based agency, which said it rated $99.0 billion in subprime RMBS during the fourth quarter, reported $420.6 billion in total 2006 subprime issuance, down 7 percent from the prior year.

“The decline is expected to continue as the subprime industry goes through a period of consolidation while it strives to toughen underwriting standards,” Kimmel added.

The average subprime mortgage balance was a record $191,090 during the fourth quarter, $5,000 higher than the prior period, S&P said. Meanwhile, the average FICO score on subprime loans was 628 in the latest quarter, 20 points higher than five years earlier, and the weighted average loan-to-value was 82 percent — the highest in six years.

Subprime issuers of fixed-rate mortgages during the fourth quarter with the lowest weighted average FICOs were CWABS Inc. at 601.41, Delta Funding Corp. at 611.88, and Equity One Inc. with 613.82, according to S&P. Adjustable-rate mortgage issuers with the lowest FICOs were Delta with 585.91, Bear Stearns & Co. with 586.82 and Equity One with 597.08.

The report also analyzed transactions involving simultaneous first and second mortgage closings.

“Piggyback borrowers have higher FICO scores on average than do non-piggyback borrowers to compensate for the increased risk inherent in obtaining piggybacks, such as increasing the CLTV and possibly the total debt burden to the borrower,” the report said. “This also explains the lower [weighted average coupons] observed for piggybacks.”

The use of second liens reached an all-time high of 31 percent during the fourth quarter, but S&P said the latest figures reflect a slight decline.

Nearly 45 percent of piggyback transactions were in California and Florida, the report indicated. Texas, Illinois and New York were also among the top five states with simultaneous first and second mortgage issuance.

“Borrower credit quality on second liens as measured by FICO has also increased in the last four years; second-lien FICOs now stand at 649 on average, up from 622 in 2002,” S&P reported. “Though this may reflect more stringent underwriting, as with all FICO analysis in the current environment, the recent low-interest-rate and mortgage-rate environments have been conducive to improved borrower performance, and thus higher FICO scores.”

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of


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

MBS Statistics

MBS Statistics Non-Agency Issuance 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Private Label RMBS Issuance (S&P) $80 billion to $100 billion (est) $70 billion $34...

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...

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...


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