Alt A Loans `Disconcerting,' Jumbos Weaker, S&P Says

By Jody Shenn

June 26 (Bloomberg) -- U.S. homeowners with good credit are increasingly falling behind on mortgage payments, a sign lenders have been offering ``higher risk'' loans outside the so-called subprime market, Standard & Poor's Corp. said today.

Rising late payments and defaults on so-called Alt A mortgages made last year are ``disconcerting'' and delinquent borrowers appear to be ``finding it increasingly difficult to refinance'' or catch up on their payments, S&P analysts said today in a statement. ``Serious'' delinquencies, foreclosures and seized property among ``prime jumbo'' mortgages in bonds from 2006 reached the highest among loans of less than 13 months since at least before 2000, S&P said in a separate report.

Alt A home loans are granted to borrowers with generally good credit scores who opt for unusual loan terms or underwriting standards, such as reduced proof of their pay, without enough offsetting positive attributes.

S&P, one of the two largest ratings firms, is now ``examining how the risk profile clearly increased'' in the Alt A market, it said in a statement sent by e-mail today. ``We will communicate our findings to the market,'' S&P said, in language it typically uses ahead of adjusting its rating methodology.

Jumbo Mortgages

Jumbo mortgages are larger than those accepted by government-chartered mortgage companies Fannie Mae and Freddie Mac, the two biggest U.S. home-loan buyers. For single family loans, the limit has been $417,000 for the past two years. Prime mortgage are considered the safest for the lenders.

Bonds backed by first mortgages in the subprime, Alt A and prime jumbo categories total about $824 billion, $722 billion, and $517 billion, respectively, according to a March report from analysts at Credit Suisse Group. Overall first-lien mortgage debt $7.8 trillion, it said. About $3.8 trillion is in mortgage securities guaranteed by Fannie Mae, Freddie Mac or federal agency Ginnie Mae and about $2 trillion are outside of bonds.

After 14 months of ``seasoning,'' the level of late payments of at least 90 days and defaults on 2006 Alt A mortgages had risen to 4.21 percent, up from 1.59 percent for 2005 loans and 0.81 percent for 2004 loans, S&P said. The firm used data from First American Corp.'s LoanPerformance unit. S&P excluded so- called option adjustable-rate mortgages, whose minimum payments create growing loan balances for borrowers.

Late payments of up to 90 days, foreclosures and seized property for prime jumbo mortgages from last year were at 0.7 percent after 12 months, S&P said, the worst early performance of the loans since at least before the 2000 ``vintage.''

As of March, delinquencies of at least 90 days and defaults on prime jumbo mortgages in bonds from any year were at 0.41 percent, the highest since November 2003 and up from 0.22 percent a year earlier, according to a June 1 report from Friedman Billings Ramsey Group in Arlington, Virginia.

For Alt A mortgages, the level rose 2.26 percent, the highest since January 2004 and up from 0.90 percent, the firm said. For subprime loans, the level rose to 11.44 percent, the highest since August 1997 and up from 6.52 percent.