Problems in the subprime loan market have been front-page news for weeks, with a total of 27 mortgage lenders going belly up since December, according to The Mortgage Lender Implode-O-Meter, a Web site that tracks cases of sudden death syndrome among lenders. (The figure includes subsidiaries of lenders as well.)
For a while, rising delinquency rates, plunging share prices and increased risk perceptions about securitized loans were confined to the subprime market. In other words, it was a niche sector of the loan market (borrowers with a checkered credit history) affecting a niche sector (housing) of the economy.
Gradually the notion that the bust part of the housing boom/bust cycle might not be quite so benign started to manifest itself elsewhere.
The punishment meted out worldwide hardly fits the crime, but it does reflect a degree of nervousness about risk — a concept that has been pretty much off the table in recent years.
It should come as no surprise that the distress is spreading beyond the subprime market to “Alt-A” loans, according to Andy Laperriere, managing director at the ISI Group in Washington.
“The risky characteristics of Alt-A loans are eerily similar to subprime loans and are likely to experience larger- than-expected losses,” Laperriere writes in a Feb. 26 report to clients.
Alt-A loans (alt is short for alternative) are made to borrowers with a prime credit rating who for some reason don’t want to provide full documentation on income or assets. (Alt-A loans are not to be confused with Alt-B, which are made to subprime borrowers who are willing to document their financials.)
Data from First AmericanLoanPerformance, a mortgage research firm in San Francisco, bear out Laperriere’s suspicions. The more recent Alt-A adjustable rate mortgages — those originated in the 12 months through December — are performing worse than loans of similar age in recent years. The 3.1 percent delinquency rate for the 12 months ended December is the worst since 2000, according to Mark Carrington, director of analytical sales and support at the company.