Mortgage/Credit Trends [Housing Tracker]

Subprime Mortgage Bonds Lead `Extinct' Credits, Moody's Says. “Jennifer Elliott, Moody's group managing director in the Asia- Pacific: Subprime mortgage-backed bonds lead credit products rendered “extinct” by the collapse of the U.S. housing market. Collateralized debt obligations packaging loans and structured investment vehicles will also disappear as investors refuse to buy debt linked to U.S. housing market losses… Subprime mortgage bonds made up almost half of the world's home loan debt securities prior to the housing collapse, Elliott said. Sales of bonds backed by U.S. commercial and residential loans have fallen about 90% this year from the same period in 2007. Derivative-based securities have also plunged 90% and high-risk, high-yield bonds sales have been cut by 70%.” (Bloomberg, Aug. 21)

Study: Subprime Credit Card Users Improve Ratings In Two Years. “Citizens for Equal Access to Credit study: A large percentage of subprime credit card users improved their credit rating within a two-year period. Based on a study of 360,000 card users, at least 35% of consumers with low-limit credit cards improved their credit scores in two years. More than 60% increased their score by 40 or more points and were awarded a higher credit-card limit. The study was conducted by the advocacy group to help prove that low-limit credit cards can help consumers re-establish good credit.” (Nashville Business Journal, Aug. 20)

Option ARM Fallout To Surpass Subprime Mess. “Barclays Capital study: Nearly 95% of all outstanding option ARM loans "have negatively amortized to some extent" and that payment shock… when the loans reset, will be far more severe than the highly publicized subprime adjustments… A majority of the existing loans would recast in 2010-11 and monthly payments would jump 60-80%. By comparison, most subprime resets should cause only an 8-10% payment shock…Option ARM borrowers [can’t refinance as they] chose this loan… to purchase a home they could not afford with any other loan… Furthermore, many of these borrowers are locked into these loans due to prepayment penalties… Between 2008-2012, approximately $312 billion in option ARM loans will recast to become fully amortizing loans. The majority of these recasts will come in 2010 and 2011 when $109B and $118B will recast, respectively.”  (Boston.com, Aug. 19)

 

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Comments

[JasonC:]

I don't think subprimes were anything remotely like half of the world's oustanding home loan debt securities, unless that is a deliberately misleading category. Subprime loans were 15% of the US mortgage market, with Alt-A another 5%. No doubt the prime mortgages are more often held by issuing banks rather than securitized, but the volume securitized through the GSEs or GNMA is still enourmous and prime. Most likely the statement is a journalist misinterpretation of a subsubcategory like "private company new mortgage security issuance in calendar 2007", or something similar.

2008 Aug 22 01:00 PM

[ksmithdc:]

Well said, Jason!

2008 Aug 23 09:29 AM

[I should know:]

Jason, ditto.. .. . .

Additionally, as an FYI to those interested in the Option ARM issue, Wells Fargo did ZERO Option ARMS, none. They didn't like the program and didn't think it was the right thing for their customer or bank. The sales field lost an opportunity to do 20% or more additional business during the Option ARM hay-days ('01 through '06) but the senior management stuck to their guns. Turns out they were right.

2008 Aug 25 08:38 AM