Creeping Up The Food Chain

Subprime Woes Creeping Up to Alt - A home loans.

Today, IndyMac (NDE) -4.7%, Impac Mortgage (IMH) - 5.6%, CountryWide (CFC) -2.7%, and GM +1%. All major players in the ALT - A mortgage space.

Alt-A loans were originally designed for borrowers with clean credit records, but with other issues that often meant they provided fewer documents or even no documents showing what they earned.

A record $400 billion of these loans were originated in 2006. They accounted for 13.4% of all mortgages offered last year, up from 2.1% in 2003.

Indeed, losses on Alt-A loans were already creeping up at the end of last year: 2.38% of Alt-A loans were at least 60-day delinquent in December. That's the highest level since February 2004 and up from 0.93% in August 2005.

More than 80% of Alt-A mortgages that were securitized in 2006 were low documentation, stated income loans, that's up from 68% in 2005.

58% of all mortgages originated in Q406 were low documentation loans. That was up from 21% at the start of 2000.

In California, 86% of all mortgages offered in Q4 were low documentation loans. That's up from 29% in early 2000.

How are the stocks doing? IndyMac, the largest Alt-A mortgage lender, has slumped 32% so far this year. Impac, a smaller rival, is down almost 40%.

Countrywide Financial shares have fallen 14% this year. About 15% of the company's mortgage origination in 2006 was Alt-A loans.

More than three quarters of the loans IndyMac originated last year were Alt-A mortgages. Over 90% of Impac's loans were Alt-A in 2006.

Even General Motors, the largest carmaker in the world, has been hit by Alt-A concerns. The company's mortgage finance business, Residential Capital Group, was the third-largest Alt-A originator in 2006.

Almost half of all the mortgages the business originated last year were Alt-A loans. GM stock has dropped more than 15% since the middle of February.

Comments