Not Just Bad Credit Home Loan Holders: Defaults to Pile Up Across Nation
Mortgage defaults will increase for at least a year, spreading beyond bad credit home loan borrowers to those with better credit, according to Michael Youngblood, an analyst at Friedman Billings Ramsey Group Inc.
Late payments of at least 90 days, foreclosures and holdings of seized property among Alt-A mortgages in bonds will probably rise to 3.92 percent in May 2008, from 2.69 percent in May 2007 and 0.89 percent a year earlier, Youngblood wrote in an Aug. 3 report.
Defaults may cause a deeper decline in housing prices.
Alt A and jumbo mortgage loans typically are bigger than those given to subprime borrowers, so a rise in defaults may lead to a bigger drag on home prices, Youngblood wrote. Subprime defaults are at their highest in a decade, estimates Friedman Billings of Arlington, Virginia, a real estate investment trust that holds mortgages and related securities and owns most of investment bank FBR Capital Markets Corp. U.S. home prices are forecast by the National Association of Realtors to fall this year for the first annual decline since the 1930s.
“Alt A and jumbo defaults will have a greater impact on housing because the loans are generally on higher valued properties and higher valued priorities are always more volatile in price,” said Youngblood, who is a former head of mortgage research at GMAC’s Residential Funding Corp. unit, which started out in 1982 as the first specialist in jumbo mortgage securitization.
“In contrast, the [bad credit home loan] market encompasses the most affordable housing in the country,” where foreclosure sales can be absorbed more easily, he said in an interview.
“Not Limited”
Wells Fargo & Co., IndyMac Bancorp Inc., Wachovia Corp. GMAC LLC, and others have already started cutting back on loan programs and raised rates, adding pressure to a U.S. housing market slump. Lenders curbed credit as demand for some securities backed by U.S. home loans has dried up amid widening subprime- bond losses and concerns about easier loan criteria.
“Liberal underwriting was not limited to subprime loans,” said Youngblood.
Jumbo Defaults
The rate for prime jumbo’ mortgages will rise to 0.53 percent, from 0.37 percent in May, and 0.22 percent a year earlier, Youngblood said. For subprime mortgages, the rate will rise to 14.6 percent in May 2008, the highest ever, from a high of 12.4 percent and 6.72 percent a year earlier, he said.
Friedman Billings last month agreed to sell a majority stake in its subprime lending unit back to buyout company Sun Capital Partners Inc.
Non-agency bonds backed by first mortgages in the Alt-A category total more than $700 billion, trailing the more than $800 billion in subprime debt, according to a March report from Credit Suisse Group. About $500 billion in jumbo-loan bonds are outstanding, Credit Suisse said.
SOURCE: Bloomberg News