Standard & Poor's may cut its ratings on $913.9 million of U.S. mortgage securities backed by Alt A loans because of rising delinquencies and losses that may ``exceed historical precedent.''
S&P placed 207 classes of bonds rated from October 2005 through December 2006 on CreditWatch with negative implications, adding to the 30 classes from that period placed on CreditWatch beginning in March. The most recent group makes up less than one percent of the $455.4 billion total value of such bonds.
Delinquencies are increasing because of a combination of declining house prices and lenders who financed home purchases to buyers with no down payment and limited proof of income. The step is a sign that defaults are spreading outside of subprime mortgages made to people with poor credit scores.
The bonds now have ``delinquency and default loss trends that are indicative of poor future performance and these trends will continue to exceed historic precedent and our original ratings assumptions,'' S&P analysts led by Robert Pollsen and Andrew Giudici said in a report.
Alt A mortgages are granted to borrowers with good credit scores who want more flexibility than traditional mortgages offer for the overall level of risk they pose. 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 analysts at Credit Suisse Group. Alt A is short for Alternative-A.
Seized Property
Alt A adjustable-rate mortgages with a few years of fixed rates in bonds issued by Bear Stearns Cos., Lehman Brothers Holdings Inc. and Morgan Stanley last year are going bad at the fastest rates because they have the riskiest attributes, according to a report today from Barclays Capital.
Late payments of at least 90 days, foreclosures and holdings of seized property among Alt-A mortgages in bonds rose in May to 2.69 percent, the highest on record, from 0.89 percent a year earlier, according to Michael Youngblood, an analyst at Arlington, Virginia-based Friedman Billings Ramsey Group Inc. They'll probably rise to 3.92 percent by next May, he said.
For new transactions, S&P said it will assume higher default and loss rates. For loans used to purchase homes with little money down, the firm will expect 5 percent to 50 percent more defaults, depending on borrowers' level of equity.
Layered Risks
S&P said it's also reducing its reliance on credit scores when assessing loans with ``layered risks,'' those which include features such as low down payments and income documentation granted at the same time.
``In late 2005 and 2006, mortgage origination underwriting guidelines expanded rapidly, which allowed the proliferation of layered risks within the Alt-A market,'' the firm said. ``This combination of multiple risk factors for a single loan is the principal driving force behind the deteriorating performance of the 2006 vintage.''
About $13 million of the bonds most recently placed on CreditWatch have been paid off, leaving about $901 million outstanding.
S&P placed 207 classes of bonds rated from October 2005 through December 2006 on CreditWatch with negative implications, adding to the 30 classes from that period placed on CreditWatch beginning in March. The most recent group makes up less than one percent of the $455.4 billion total value of such bonds.
Delinquencies are increasing because of a combination of declining house prices and lenders who financed home purchases to buyers with no down payment and limited proof of income. The step is a sign that defaults are spreading outside of subprime mortgages made to people with poor credit scores.
The bonds now have ``delinquency and default loss trends that are indicative of poor future performance and these trends will continue to exceed historic precedent and our original ratings assumptions,'' S&P analysts led by Robert Pollsen and Andrew Giudici said in a report.
Alt A mortgages are granted to borrowers with good credit scores who want more flexibility than traditional mortgages offer for the overall level of risk they pose. 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 analysts at Credit Suisse Group. Alt A is short for Alternative-A.
Seized Property
Alt A adjustable-rate mortgages with a few years of fixed rates in bonds issued by Bear Stearns Cos., Lehman Brothers Holdings Inc. and Morgan Stanley last year are going bad at the fastest rates because they have the riskiest attributes, according to a report today from Barclays Capital.
Late payments of at least 90 days, foreclosures and holdings of seized property among Alt-A mortgages in bonds rose in May to 2.69 percent, the highest on record, from 0.89 percent a year earlier, according to Michael Youngblood, an analyst at Arlington, Virginia-based Friedman Billings Ramsey Group Inc. They'll probably rise to 3.92 percent by next May, he said.
For new transactions, S&P said it will assume higher default and loss rates. For loans used to purchase homes with little money down, the firm will expect 5 percent to 50 percent more defaults, depending on borrowers' level of equity.
Layered Risks
S&P said it's also reducing its reliance on credit scores when assessing loans with ``layered risks,'' those which include features such as low down payments and income documentation granted at the same time.
``In late 2005 and 2006, mortgage origination underwriting guidelines expanded rapidly, which allowed the proliferation of layered risks within the Alt-A market,'' the firm said. ``This combination of multiple risk factors for a single loan is the principal driving force behind the deteriorating performance of the 2006 vintage.''
About $13 million of the bonds most recently placed on CreditWatch have been paid off, leaving about $901 million outstanding.
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