Alt-A, HELOCs Proving Problematic; Are Prime Jumbos Next?

Two hundred and fifty-seven percent. That’s how much higher cumulative losses to date on 2007 vintage home-equity lines of credit were during March, when compared to the same time frame for the 2006 vintage. It’s an increase that comes despite a surprising month-to-month decrease in delinquencies for 2007 HELOCs, according to a report released Monday afternoon by Standard & Poor’s. HELOCs are proving increasingly problematic for lenders, S&P said — and, in particular, the 2006 and 2007 vintages. For example, 11.45 percent of 2006 vintage HELOCs were delinquent at the end of March, with 6.34 percent of the aggregate pool balance categorized as seriously delinquent. (Serious delinquencies refer to loans 90+days in arrears, in foreclosure, or in REO.) Serious delinquencies, often a direct harbinger of pending losses, rose more than 8 percent for 2005 and 2006 vintage HELOCs during March, according to the report. The S&P report comes on the heels of recent first quarter earnings reports at banks that found just how problematic home equity lending really can be — just ask Bank of America Corp. (BAC), or National City Corp. (NCC). Alt-A gets a failing grade While HELOCs are generating much of the attention this earnings season, Alt-A mortgage performance continues to tumble — at a rate that is now faster than the descent being recorded in the subprime RMBS space. More than 10 percent of remaining 2007 vintage Alt-A mortgages reached the delinquency bucket during March, S&P said, an increase of 7.5 percent since February alone. Serious delinquencies reached above 10 percent for 2006 Alt-A mortgages during March, as well — meaning that the 2006 vintage is likely the first Alt-A pool on record with delinquencies and severe delinquencies north of 10 percent, simultaneously. And while losses are accelerating for the 2006 vintage, they’re moving even faster for 2007 Alt-A pools: delinquencies rose 12.2 percent in March, and serious DQs by a stunning 18.9 percent. It’s clear at this point that the 2007 vintage will go down across the board as perhaps the worst vintage in modern securitized mortgage history, something Housing Wire first speculated on way back in August of last year. While losses are now both noticeable and relevant for both HELOCs and Alt-A mortgages, S&P’s data also shows potential trouble brewing in prime jumbos — the name given to securitized mortgages north of the traditional $417,000 conforming lending limit, and without the exotic features that define Alt-A mortgages. S&P said that total delinquencies for prime jumbos originated in 2006 rose 15.4 percent during March, while the 2007 vintage saw DQs ratchet upward by 15.5 percent — keep in mind, that’s on a monthly comparison basis, to boot. Serious delinquencies rose even higher, to 22.6 percent for the 2006 vintage and 18.8 percent for the 2007s. While cumulative losses in prime jumbos haven’t yet reached levels that should immediately concern investors, the speed with which even prime jumbos are now headed into delinquency is a trend that every mortgage market participant should keep a close eye on. For more information, visit http://www.standardandpoors.com.