I’ll just say up front that this is one of those lame blog posts that links to another person’s blog post and then appends a little extra commentary at the end, which is exactly the type of blog post that one might expect on a Friday afternoon in late June.
The linked-to blog post in question comes from local real estate luminary Jim "The Realtor" Klinge, and it offers up a host of data comparing subprime and Alt-A mortgages in California. The difference, to put it simply, is that while "subprime" describes mortgages given to borrowers with low credit scores, "Alt-A" describes high-risk mortgages granted to people with better credit scores.
I’ve long argued that subprime loans weren’t the only ones at risk of default, and Jim’s data (sourced from the New York Fed) shows that this is true. (For instance, 23.5 percent of Alt-A loans have late payments over the past two years.) But what interests me most about Jim’s post is that it suggests that much of the Alt-A pain may still be pretty far in the future.
I just finished listening to
I just finished listening to “A Giant Pool of Money” on NPR (This american Life). Very well done. I don’t see how anyone can afford to buy homes in San Diego at current prices for much longer. The kind of lending that fueled this bubble is dead. It baffles me that sellers are still getting up to a milion dollars for homes here in North Park…..how long can this last? Where are these buyers coming from?
Thanks for the great info.
Thanks for the great info. Question: Do the Alt-A neg-am loans have some kind of loan-to-value limit that can accelerate your payment schedule? Or is the reset schedule set in stone?
ltokuda, with the option ARMs
ltokuda, with the option ARMs there can be rate resets but the real killer is the recast when you reach some LTV on the original loan (100, 115, or 125%). That is a ways out for most loans according to the calculations I’ve seen. I should have made that distinction in the article come to think of it, but the end result is the same that the pain still looks a couple years in the future.
rich
Rich, thanks for the
Rich, thanks for the clarification.
Bummer! I’ll probably end up buying in OC in 2010 and was hoping the Alt-A foreclosures would be in full force by then. Instead, it looks like the bulk of the action will take place in 2011 and 2012.
one of those lame blog posts
one of those lame blog posts that links to another person’s blog post and then appends a little extra commentary at the end
I resemble that remark.
I was hoping your post would
I was hoping your post would be on Chuck Smiar. It appears he has changed his tune.
Coincidentally, I read in the
Coincidentally, I read in the LA Times today that the Pasadena-based bank IndyMac is in serious trouble. Its share price plummeted recently, and it is having difficulty funding new business. Apparently, it was writing a lot of Alt-A mortgages.
Reading Jims post, I had
Reading Jims post, I had three things strike me about Alt-A.
1) 83.2% Low or No Doc loans. 4 out of 5 are liar loans! Only half of subprime is liar loans.
2) 36% are purchase loans, so 64% are refi’s (45% cash out). General logic states that the areas built durring the bubble would be the most likely to fall, since they would have the highest concentration of bubble loans. This just tells me that everyone is at risk, not just the new areas.
3) 3.6 + 4.9 + 43.3+ 28 = 79.8% resets. Where are the other 20% of resets? They only are missing 11% of the subprime resets. Is there just no information on these loans? There seem to be ~104000 loans that are missing a reset date. (721k*.72 * .2) that is 4500 foreclosures at todays rates, and the trend line is only up. Missing data is rarely good data, and makes me wonder even more.
Ocrenter had a good blog
Ocrenter had a good blog entry from a couple of weeks ago here. It includes a video from Mr. Mortgage discussing Alt-A vs. subprime.
I found this article
I found this article yesterday. Looks like this thing is already starting to hit.
“The rate of option ARM delinquencies is already spiking”
http://tinyurl.com/5jr8dq
“A major concern is that 70% of option arms are concentrated in California and Florida – two states that have already been hard hit by the housing slump. Subprime mortgages, on the other hand, were dispersed across the country (about 60% of them were outside Florida and California) And as prices in those states continue to fall, refinancing options for these borrowers disappear even as recasts loom.
According to a recent analysis by Lehman Brothers, option ARMs that originated in 2006 performed about as well as fixed-rate Alt-A debt for the first 12 months. But by the time they were 2 years old, about 2.1% of performing loans were going 60-days delinquent each month. Compare that to a 1.2% of current loans going delinquent with other Alt-A loans. The rate of increase in delinquencies is even beginning to approach that of subprime, which is about 2.5%.”
I can cut and paste with the best of them!