Mortgage Downgrade Hitting Alt-A Loans as Well

Default. It’s not just for bad credit mortgages anymore.

Rising delinquencies on U.S. home loans are hitting higher-quality home mortgages for the first time, Standard & Poor’s said Thursday, as it put some of the bonds backed by the largest U.S. home mortgage company’s loans on review.

The rating company said that it placed a Countrywide Financial mortgage-backed bond issue under review for downgrade.

It was the only so-called “Alt-A” (or bad credit mortgage) loan from 2006 to be placed on such a review based on poor performance of underlying loans.

S&P on Wednesday also put 10 subprime issues on CreditWatch negative.

Representing one of the fastest growing segments of the $10 trillion U.S. home mortgage market, Alt-A mortgage loans are typically issued to borrowers with better credit than subprime, but still short of the most stringent requirements, such as proof of income.

A FICO credit score below 620 in a range from 350 to 850 usually puts borrowers in the subprime category.

A spokeswoman for Calabasas, Calif.-based Countrywide, the biggest U.S. mortgage lender, declined immediate comment.

The reviews follow others in the subprime lending sector where the most risky home buyers have run into severe credit problems in the aftermath of the housing market boom.

Before Wednesday’s announcement, there were at least seven subprime issues already flirting with downgrades based on the rapid increase in home loan delinquencies, including some in the first month of the loan’s life.

The top driver of delinquencies were second-lien “piggyback loans” taken by borrowers that are often used as a down payment.

The Countrywide mortgage loans backed its Asset-Backed Certificates Trust 2006-IM1 mortgage bond issue, S&P reported. The other deals placed on CreditWatch were sold by units of companies including Goldman Sachs Group Inc., Lehman Brothers Holdings Inc., and New Century Financial Corp.

SOURCE: Reuters