Standard & Poor's said it may downgrade $280.1 billion of Alt-A
mortgage securities, the most that the ratings company has identified in a
single announcement for bonds backed by the loans. The debt may be cut in part
because S&P has boosted estimates for losses on each foreclosure on Alt-A
loans with at least five years of fixed rates to 40 percent, from 35 percent
...``There has been a persistent rise in the level of delinquencies among the
Alt-A mortgage loans supporting these transactions,'' S&P analysts Scott
Davey and Ernestine Warner said in the statement.
4 August, 2008--"Housing: Are More and Worse Defaults To Come?" The New York Times says possibly, thanks to Alt-A loans that
had generous teaser rates. Those borrowers will take longer to get themselves in
trouble, but without rising home prices, eventually they, too, will find
themselves under water.
I'm a little more skeptical than the Times.
Option arms and other exploding loans became popular in 2005 and 2006, thanks to
rising home prices. But Alt-A buyers qualified for longer teaser periods than
subprime borrowers--5 to 7 years instead of 2 to 3. That means that those
defaults won't start coming until 2010 at the earliest. By that time, economic
growth should be picking up, and (at the rate Ben Bernanke is going, anyway)
inflation will have eased some of the pain of their loans, even in a weak
housing market. Analysts generally expect housing declines to be three years
from peak to trough, so we're riding out the worst of it right now--at least, if
history is any guide.
Moreover, Alt-A buyers have more to lose, in terms
of their credit rating, and are generally a little more firmly rooted in the
American homeownership culture than those borrowing at subprime rates. I'd
expect them to fight a lot harder to hold onto their homes, and their ratings,
than the subprime borrowers--85% of whom, remember, are still paying their loans
11 August, 2008--After every bubble, there's generally a sort of an
anti-bubble--when analysts start looking for reasons that this is, like, the
worst crisis ever. The worries about Alt-A mortgages seem to me to be
largely part of this fever. "Everything in the future will be exactly like
everything that just happened" is what got us into this mess in the first place
. . .
I thought I'd be too worried to smile when the crash hit, but McArdle is the comedy gift that never stops.