This guy is not getting the dynamic info on Alt-A. I personally haven’t seen the data myself as to how much Alt-A is really out there but the consensus is about $600B. The most important and damaging part of that seems to be the Pay Option ARM products in the Alt-A space. With estimated $500B in Pay Option out there that would be about 80% of Alt-A. Then you have articles out there saying that…

Up to 80% of all option ARM borrowers make only the minimum payment each month, according to Fitch Ratings. The rest of the money gets added to the balance of the mortgage, a situation known as negative amortization.

There seem to be principle caps on the loans and as 80% of the buyers are effectively running Neg-Am on their loans the resets are happening quicker that expected a-la this graph…

[img_assist|nid=8526|title=Revised Alt-A Reset chart due to Pay Option ARMs|desc=|link=node|align=left|width=400|height=227]

Based on the original reset pattern the guy was on it but with this new wave coming much faster than expected it’s going to couple with what is already going on to make a real mess. This wave will likely take Wamu, Wachovia and Wells Fargo out to the woodshed.

This guy is not getting the dynamic info on Alt-A. I personally haven’t seen the data myself as to how much Alt-A is really out there but the consensus is about $600B. The most important and damaging part of that seems to be the Pay Option ARM products in the Alt-A space. With estimated $500B in Pay Option out there that would be about 80% of Alt-A. Then you have articles out there saying that…

Up to 80% of all option ARM borrowers make only the minimum payment each month, according to Fitch Ratings. The rest of the money gets added to the balance of the mortgage, a situation known as negative amortization.

There seem to be principle caps on the loans and as 80% of the buyers are effectively running Neg-Am on their loans the resets are happening quicker that expected a-la this graph…

[img_assist|nid=8526|title=Revised Alt-A Reset chart due to Pay Option ARMs|desc=|link=node|align=left|width=400|height=227]

Based on the original reset pattern the guy was on it but with this new wave coming much faster than expected it’s going to couple with what is already going on to make a real mess. This wave will likely take Wamu, Wachovia and Wells Fargo out to the woodshed.

This guy is not getting the dynamic info on Alt-A. I personally haven’t seen the data myself as to how much Alt-A is really out there but the consensus is about $600B. The most important and damaging part of that seems to be the Pay Option ARM products in the Alt-A space. With estimated $500B in Pay Option out there that would be about 80% of Alt-A. Then you have articles out there saying that…

Up to 80% of all option ARM borrowers make only the minimum payment each month, according to Fitch Ratings. The rest of the money gets added to the balance of the mortgage, a situation known as negative amortization.

There seem to be principle caps on the loans and as 80% of the buyers are effectively running Neg-Am on their loans the resets are happening quicker that expected a-la this graph…

[img_assist|nid=8526|title=Revised Alt-A Reset chart due to Pay Option ARMs|desc=|link=node|align=left|width=400|height=227]

Based on the original reset pattern the guy was on it but with this new wave coming much faster than expected it’s going to couple with what is already going on to make a real mess. This wave will likely take Wamu, Wachovia and Wells Fargo out to the woodshed.

Alt-A is really out there but the consensus is about $600B. The most important and damaging part of that seems to be the Pay Option ARM products in the Alt-A space. With estimated $500B in Pay Option out there that would be about 80% of Alt-A.

I think many people consider alt-A and option ARM interchangeable. They are not. These are not mutually inclusive categories (nor mutually exclusive).

Option ARMs are toxic. But they are a category of loan product that was available as alt-A, prime and even sub-prime.

Alt-A includes not only option ARMS, but fully amortizing and IO options on 5/1, 7/1, 10/1 ARMS, and 15, and 30 year fixed.

So the $500 Billion pay option ARMS are toast, but they are not all Alt-A loans. Some were/are subprime and prime.

Option ARM are toast. Alt-a as a general category is another question.

Alt-A is really out there but the consensus is about $600B. The most important and damaging part of that seems to be the Pay Option ARM products in the Alt-A space. With estimated $500B in Pay Option out there that would be about 80% of Alt-A.

I think many people consider alt-A and option ARM interchangeable. They are not. These are not mutually inclusive categories (nor mutually exclusive).

Option ARMs are toxic. But they are a category of loan product that was available as alt-A, prime and even sub-prime.

Alt-A includes not only option ARMS, but fully amortizing and IO options on 5/1, 7/1, 10/1 ARMS, and 15, and 30 year fixed.

So the $500 Billion pay option ARMS are toast, but they are not all Alt-A loans. Some were/are subprime and prime.

Option ARM are toast. Alt-a as a general category is another question.

Great clarification, fsd. Sounds exactly right to me. Also sounds like you should be the one writing for the Financial Times…

BTW, I wasn’t aware that Wells was so exposed in the Option ARM segment. I understand they have a problem with HELOCs. What does their balance sheet look like with respect to the Option ARM products? If they originated the products but sold them off to MBS investors, are they still on the hook in terms of their balance sheet? Servicing revenues? Where do they take the hit? What’s their liability?

Up to this point, I hadn’t grouped them into the Wachovia/Wamu set. Looking for comments on why I might be wrong…

Thanks,
Gandalf

Great clarification, fsd. Sounds exactly right to me. Also sounds like you should be the one writing for the Financial Times…

BTW, I wasn’t aware that Wells was so exposed in the Option ARM segment. I understand they have a problem with HELOCs. What does their balance sheet look like with respect to the Option ARM products? If they originated the products but sold them off to MBS investors, are they still on the hook in terms of their balance sheet? Servicing revenues? Where do they take the hit? What’s their liability?

Up to this point, I hadn’t grouped them into the Wachovia/Wamu set. Looking for comments on why I might be wrong…

Thanks,
Gandalf