Payments Shocks Boost Alt-A, Subprime RMBS Delinquencies

CreditSights says accelerating shift from interest-only to higher amortising payments will spur delinquencies.

Excerpts from US RMBS Update: A Payment-Shock Seesaw

Delinquencies of 2005-vintage subprime and Alt-A loans will likely continue to be boosted because of mortgage-related payment shocks, CreditSights says in its latest update on the US RMBS market:

“The past year has seen only 7% of subprime loans and 2% of Alt-A mortgages shifting from interest-only payments to amortising. In contrast, over the next 15 months, more than one third of interest-only subprime loans and one fifth of interest-only Alt-A loans are due to begin repaying principal. Until the middle of 2010, those interest-only expiries will be mostly 2005-vintage loans. Indeed, 60% of 2005-subprime and 20% of Alt-A interest-only loans will reset between now and the end of 2010. To put this in conext, roughly a third of 2005-originated subprime loans and more than a half of 2005 Alt-A loans were initially interest-only.”

That means that as many as 20% of subprime and 10% of Alt-A loans originated in 2005 could face payment hikes over the next 15 months.

“What’s more, interest-only loans are likely to represent an even greater percentage of the remaining principal balance outstanding for two reasons. First, interest-only loans will not have been paying off principal since being originated. And second, an interest-only loan may have been less likely to have already defaulted than an equivalent principal-repayment mortgage due to lower mortgage payments so far. Granted the default rate may have been balanced out by interest-only borrowers being the most likely to be overleveraged.”

The CreditSights report also include analysis of the impact of loan modification initiatives.

Comments

[TheSnail:]

Your a little late to the party. People have been covering this issue for over six months on this sight.

Nov 02 06:54 PM

[Homer II:]

its "site", not sight

Nov 03 01:43 AM

[BostonObserver:]

I thought most interest-only periods were five years? This chart implies that ten years was the standard, with the Alt-A spike in 2015-2017 as their IO periods come to an end.

How reliable is this data? Most of the CSFB analysis shows resets and recasts washing out of the system by ~2013.

Nov 03 05:57 AM

[sdfsdf:]

Looking at this chart second half of 2010 looks really bad. I was also wondering how may of these are going through Governments mortgage loan modification initiatives.

Nov 03 01:52 PM