Randolph Kinney
Elite Member
- Joined
- Apr 7, 2005
- Professional Status
- Retired Appraiser
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- North Carolina
Subprime Loan Delinquency Rates Up
Oct. 11, 2006, 5:13PM
Subprime Loan Delinquency Rates Up
By DANIELLE REED Dow Jones Newswires
© 2006 The Associated Press
NEW YORK — As the housing market slows, evidence continues to build that borrowers with less than perfect credit are struggling more this year than one or two years ago.
Loans made to borrowers with less-than-perfect credit _ also called subprime loans _ are being closely watched by mortgage bond investors as a bellwether for a change in low mortgage default, low-foreclosure environment that's prevailed for the better part of a decade.
Higher loan defaults and delinquencies are of concern to bond investors who could face losses if loans are paid off early due to foreclosures.
Subprime borrowers are generally thought to be more stretched financially and hence more vulnerable to a slowing housing market _ or to a slowing economy _ than are borrowers with higher credit scores.
But even some borrowers with higher credit scores than traditional subprime borrowers _ those who qualify for so-called "Alt-A" loans _ are having more difficulty keeping up with payments, noted UBS in a recent report.
As of August 2006, the rate of delinquencies in subprime loans backing mortgage bonds issued in the first quarter of 2006 reached 4.00 percent, nearly twice as high as the delinquency rate for subprime bonds issued in the first quarters of 2004 and 2005 at a similar age, said UBS in the report.
In September, Novastar Financial, a subprime lender that packages loans as bonds and sells them, released its most recent mortgage bond performance report _ called a "bond remittance report" in industry speak.
A bond issued in April, known as 2006-01, had 7,173 loans remaining and had 91 loans in foreclosure and 29 already real-estate owned (meaning the properties backing the loans had been taken over from the original borrowers). By comparison, last year, a bond called 2005-2, issued in May of 2005 had as of October 2005 11,498 loans remaining and just 23 loans in foreclosure with 1 loan real estate owned.
The report "provided evidence that recently originated subprime loans are performing much worse" than loans originated in earlier years, said Kevin Jackson, senior mortgage strategist with RBC Capital Markets in Chicago.
That said, the worsening performance of 2006 subprime loans versus previous years can also be seen in other types of loans, said UBS in its report. "For every Alt-A product type, the delinquency rates of (the) 2006 vintage are higher than their predecessors" at a comparable point in the life cycle of the bond, UBS said.
For example, after about six months into 2006, Alt-A option adjustable-rate mortgage loans had close to a 0.5 percent rate of delinquencies of 60 days or more. At a similar age, 2005 loans had a rate a bit under 0.4 percent, and 2004 vintage loans had a rate of close to 0.2 percent.
For Alt-A interest-only loans with interest-only terms of five years, the 2006 vintage loans had a delinquency rate of slightly over 1.3 percent after about six months, while 2005 vintage loans stood at 1.2 percent and 2004 loans at a similar age stood at 1.00 percent.
The rising incidence of delinquencies and defaults across mortgage types, UBS said, appears to coincide with the peak of the housing market in late summer 2005. Ever since home sales started slowing, supply of homes for sale started increasing and prices started rising more slowly or even falling in some markets, borrowers have been having a tougher time.
Oct. 11, 2006, 5:13PM
Subprime Loan Delinquency Rates Up
By DANIELLE REED Dow Jones Newswires
© 2006 The Associated Press
NEW YORK — As the housing market slows, evidence continues to build that borrowers with less than perfect credit are struggling more this year than one or two years ago.
Loans made to borrowers with less-than-perfect credit _ also called subprime loans _ are being closely watched by mortgage bond investors as a bellwether for a change in low mortgage default, low-foreclosure environment that's prevailed for the better part of a decade.
Higher loan defaults and delinquencies are of concern to bond investors who could face losses if loans are paid off early due to foreclosures.
Subprime borrowers are generally thought to be more stretched financially and hence more vulnerable to a slowing housing market _ or to a slowing economy _ than are borrowers with higher credit scores.
But even some borrowers with higher credit scores than traditional subprime borrowers _ those who qualify for so-called "Alt-A" loans _ are having more difficulty keeping up with payments, noted UBS in a recent report.
As of August 2006, the rate of delinquencies in subprime loans backing mortgage bonds issued in the first quarter of 2006 reached 4.00 percent, nearly twice as high as the delinquency rate for subprime bonds issued in the first quarters of 2004 and 2005 at a similar age, said UBS in the report.
In September, Novastar Financial, a subprime lender that packages loans as bonds and sells them, released its most recent mortgage bond performance report _ called a "bond remittance report" in industry speak.
A bond issued in April, known as 2006-01, had 7,173 loans remaining and had 91 loans in foreclosure and 29 already real-estate owned (meaning the properties backing the loans had been taken over from the original borrowers). By comparison, last year, a bond called 2005-2, issued in May of 2005 had as of October 2005 11,498 loans remaining and just 23 loans in foreclosure with 1 loan real estate owned.
The report "provided evidence that recently originated subprime loans are performing much worse" than loans originated in earlier years, said Kevin Jackson, senior mortgage strategist with RBC Capital Markets in Chicago.
That said, the worsening performance of 2006 subprime loans versus previous years can also be seen in other types of loans, said UBS in its report. "For every Alt-A product type, the delinquency rates of (the) 2006 vintage are higher than their predecessors" at a comparable point in the life cycle of the bond, UBS said.
For example, after about six months into 2006, Alt-A option adjustable-rate mortgage loans had close to a 0.5 percent rate of delinquencies of 60 days or more. At a similar age, 2005 loans had a rate a bit under 0.4 percent, and 2004 vintage loans had a rate of close to 0.2 percent.
For Alt-A interest-only loans with interest-only terms of five years, the 2006 vintage loans had a delinquency rate of slightly over 1.3 percent after about six months, while 2005 vintage loans stood at 1.2 percent and 2004 loans at a similar age stood at 1.00 percent.
The rising incidence of delinquencies and defaults across mortgage types, UBS said, appears to coincide with the peak of the housing market in late summer 2005. Ever since home sales started slowing, supply of homes for sale started increasing and prices started rising more slowly or even falling in some markets, borrowers have been having a tougher time.
