Wednesday, April 4, 2007

WSJ: "Payment Woes Worsen on Riskiest Mortgages"

From the WSJ: "The number of borrowers in the U.S. falling behind on the riskier types of home mortgages continues to grow...For Alt-A loans ... the late-payment figure rose to 2.6% in January from 2.3% in December and 1.3% in January 2006."

Check out Market Ticker for good analysis of this data.

Meanwhile, I got ahold of the First American Loan Performance report that the WSJ based the article on. Here's two choice graphs:

These two graphs show the delinquency rate for the two types of Alt-A loans (adjustible rate, interest only; and adjustible rate, option) that comprise the vast majority of Downey Financial's (DSL) loan portfolio.

As you look at this chart, remember 19% of DSL's loans were originated in 2006 and 40% were originated in 2005.

The 2006 IO ARMs are over 3% delinquent!

Meanwhile, the 2006 option ARMs are just scratching 1% delinquency. I think this is because the option ARM borrowers are scraping by with the minimum negative amortizing payment - although that is becoming untenable for them at an increasing rate.

More and more of the option ARM borrowers are going to be hitting the negative amortization 110% cap. (Tanta at CR has a great explanation of this recasting process.)

When the option ARMs recast and the payments skyrocket, the delinquency rate is going to skyrocket.


Anonymous said...

Thanks for this! What is the number along the X-axis? I'm I just being silly and missing something obvious?

Anonymous said...

Great post. Analysts and the media continue to highlight the "relatively low" delinquency experience of option arm's. As you note, its unlikely that anyone but a speculator/flipper would default on one of these before recast. We'll know in a few months what the '05 option arm delinquency experience really looks like.