The Later The Subprime And Alt-A Loan, The Greater The Default Rate
If you are looking for an indicator on who is defaulting on subprime and Alt-A loans, just see when they were written. A 2007 subprime loan has 26 percent chance of being in default.
These are some disturbing numbers. Is it because there is no equity in these homes or were the borrowers at the bottom of the barrel in terms of qualifying?
My guess is both are correct.
Delinquencies for Alt-A mortgages rated between 2005 and 2007 are climbing, with total delinquencies rising as high as 17 percent in some cases, more than 6 percentage points higher than previous estimates, the ratings agency said in a report.
Lower-quality subprime mortgage delinquencies soared as high as 37 percent for mortgages originated in 2006, 4 percentage points higher than previous estimates, S&P said.
Subprime mortgages originated in 2007 saw delinquencies climb to almost 26 percent, 6 percentage points higher.
“The 2007 issuance year continues to be the worst-performing vintage in terms of cumulative losses,” S&P said, regarding subprime mortgages. “Serious delinquencies” of payments 90 days late or more and foreclosures also are rising, S&P said. via Reuters.
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Comment by John Corey on 29 May 2008:
Is the issue with all sub-prime or specific types of sub-prime? The option ARM loans can swing a lot more when the loan resets.
What about the Alt-A. Are they showing the same default profile or does the data show that the issue is specific to a subset? What about recent Alt-A makes the borrowers more prone to default? Prices have gone soft or fallen in the past. Is the direction of prices the prime indicator and therefore is the key variable that will matter in future loan approval processes?