Alt-A mortgage loans made in 2006 are going bad at more than four times the rate as similar loans made in 2004, analysts at Standard & Poor’s said Tuesday.
Alt-A loans are offered to home buyers who don’t have perfect credit, but who are considered less of a risk than subprime borrowers.
After 14 months of seasoning, 4.21 percent of Alt-A loans securitized and sold on Wall Street in 2006 are 90 days or more delinquent, or have been foreclosed. That compares with 1.59 percent for 2005 vintage Alt-A loans, and .91 percent for the 2004 vintage with the same amount of seasoning, Standard & Poor’s said, citing data from First American CoreLogic’s LoanPerformance.
Standard & Poor’s attributed the higher rate of serious delinquencies in the 2006 vintage to a greater proportion of loans made to borrowers with limited income documentation and little equity in their homes.
“The most disconcerting trend is how quickly the performance of these delinquent borrowers has deteriorated,” Standard & Poor’s analysts said. “We continue to see migration from 60-plus-day to 90-plus-day delinquencies within the 2006 vintage, suggesting that homeowners who experience early delinquencies are finding it increasingly difficult to refinance or work out problems.”
In 2006, “Lenders became increasingly comfortable with offering higher-risk loans in substantially greater numbers not only to subprime homeowners, but also to Alt-A homeowners,” Standard & Poor’s said. “As underwriting standards have tightened in 2007 and rates of home-price appreciation slowed or declined, indebted homeowners who experience financial trouble may have fewer refinancing options and may find it difficult to avoid going into foreclosure.”