Countrywide announced that its mortgage closings in September are down 44 percent compared to September, 2006. (more…)

Dire as the bad credit Florida mortgage crisis already is, it’s likely to spread to a higher tier of home loans known as Alt-A.

That’s according to a respected economist affiliated with the University of California at Los Angeles.

“The question is to what extent,” David Shulman, a senior economist with the UCLA Anderson Forecast in Los Angeles, said. “That could be the next shoe to drop. Certainly, it’s a very reasonable concern.”

California is home to half of the 20 biggest U.S. bad credit and Alt-A mortgage lenders, which are also prevalent in Florida.

The deteriorating subprime mortgage industry has spawned a probe by the California Attorney General, Jerry Brown. Congress is considering regulations to tighten lending standards for such mortgages.

Subprime loans, a term applied to some of the riskiest Florida mortgage products, are typically made to borrowers with poor credit or extremely high debt burdens.

An Alt-A mortgage is made to people who are considered good credit risks, but who may lack documents needed to qualify for conventional loans.

UCLA Anderson Forecast dropped its forecast for housing starts this year to 1.33 million units from a previous estimate of 1.48 million units. Constructors broke ground on new homes at a 1.53 million rate in February.

Lawmakers have criticized the Federal Reserve and other bank regulators in recent weeks for allowing too many borrowers to get mortgages they couldn’t afford to repay.

Tom Marano, head of the mortgage business at Bear Stearns Cos. in New York, said on March 29 that he doesn’t see a significant risk of the subprime lending problem spreading to other parts of the home loan market.

Shulman disagreed.

“We suspect the problem in the [subprime mortgage] area is just the tip of the iceberg for the mortgage market as a whole,” he wrote.

UCLA Anderson Forecast is affiliated with the University of California at Los Angeles and is located at the UCLA Anderson School of Management.

SOURCE: Bloomberg News

The subprime Florida mortgage crunch is beginning to ensnare even borrowers with solid credit.

Lenders are increasingly refusing to lend to buyers who can’t make a down payment of more than 5 percent, especially if they won’t document their income. Until recently, such borrowers qualified for so-called Alt-A mortgages, which rank between prime and subprime in terms of risk. Last year the category accounted for about 20 percent of the $3 trillion of U.S. mortgages, about the same as subprime loans, according to Credit Suisse Group.

“It’s going to be very difficult, if not impossible, to do a no-money-down loan at any credit score,” said Alex Gemici, president of Parsippany, New Jersey-based mortgage bank Montgomery Mortgage Capital Corp. Companies that buy the loans “are all saying if they haven’t eliminated them yet, they’ll eliminate them shortly.”

Tighter lending standards may slash subprime Florida home loan sales in half this year and Alt A mortgages by a quarter, according to Ivy Zelman, a Credit Suisse analyst in New York who covers homebuilders. The new requirements will force some prospective buyers to save more money for a down payment or risk being denied credit.

Pulling Back
Bear Stearns Cos., General Electric Co.’s WMC Mortgage, Countrywide Financial Corp., IndyMac Bancorp Inc., Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Credit Suisse have all said in the last two weeks they’re pulling back from buying Alt A mortgages sold with no down payment or in a Florida mortgage refinancing of the house’s entire value.

Such companies facilitate the mortgage market by buying loans and repackaging them for sale as bonds to buyers such as insurers and hedge funds.

“We’ve been warned,” said Cheryl Hand, manager of Prudential New Jersey Properties’ office in Manalapan, New Jersey. She said she’s hoping a client of her realty brokerage who’s been approved to buy a home with nothing down won’t have the loan quashed before the closing.

Mortgages are categorized as Alt A when they fall just short of the typical standards of Fannie Mae and Freddie Mac, the two largest U.S. mortgage companies. Some mortgage lenders require a credit score of at least 700 for an Alt A mortgage, while others will accept a score as low as 620. The maximum score is 850.

Besides some Florida home loans requiring no down payment or proof of income, they are often made to buy a second home, a rental unit or to speculate on real estate. Also often falling into the category are loans that are option adjustable-rate mortgages, whose minimum payments can fail to cover the interest owed.

Defaults Rising
Consumers borrowed 100 percent of their home’s value on about 18 percent of Alt A loans made last year, according to Bear Stearns, the largest mortgage-bond underwriter. Another 16 percent had loan-to-value ratios above 90 percent as well as limited documentation, they say. The category comprised about 5 percent of new loans in 2002, according to Credit Suisse.

Late payments of at least 60 days and defaults on Alt A mortgages have risen about as fast as on subprime ones, to about 2.4 percent, according to bond analysts at UBS AG. Loans in the category made to borrowers with low credit scores, equity and documentation are doing about as badly as subprime loans, according to Citigroup Inc. and Bear Stearns analysts.

Rapid credit tightening that’s “been isolated to the subprime world has really migrated” in the past two weeks to Alt A offerings that involve borrowing nearly all of a home’s worth, said Brian Simon, senior vice president at Mount Laurel, New Jersey-based mortgage bank Freedom Mortgage Corp. “We’re just hopeful it will settle down soon.”

SOURCE: Bloomberg News

Bad credit Florida home loans have been generating a lot of attention and worry of late among investors, housing officials, economists and regulators.

That’s nothing new nowadays. But those loans could be only part of the threat posed to the housing market by risky Florida mortgage lending.

Some experts are growing concerned about the so-called Alt-A mortgage loan market, which has grown even faster than the market for bad credit Florida mortgage loans to borrowers with less than top credit.

Alt-A refers to people with better credit scores (A-credit) who borrow with little or no verification of income - so-called alternative documentation.

But some people in the industry call them “stated income” loans, or worse, “liar loans.” And these no-doc loans were an important part of the record real estate boom of 2001-2005 that has recently shown signs of a bust.

Standard & Poor’s estimates that nationally, the Alt-A market has gone from less than $20 billion in volume in the fourth quarter of 2003 to more than $100 billion in each of the last three quarters.

But just as the Alt-A market share has grown faster than the bad credit Florida home loan market, some believe it could shrink even faster amid some of the concerns in the marketplace right now.

That means another pool of money that has supported home sales and housing prices being yanked just as the Florida housing market is already in decline.

Alt-A home loans were very popular among home buyers who were in the market for a real estate investment property, instead of a home that they intended to live in as their primary residence.

And while the default and foreclosure rates for Alt-A are only a fraction of the rates for subprime lending, the widespread use of the home loans by investors is a concern, given the glut of inventory now sitting on the market without buyers.

Still, experts say that while Florida mortgage default rates are likely to rise for many Alt-A loans, they won’t reach the levels seen of late in the subprime sector.

Only 1.5 percent of Alt-A loans are now 60 days delinquent or more, while in subprime / bad credit Florida mortgages it is 7.5 percent.

Barring a major recession, officials don’t think Alt-A mortgage problems will reach the same kind of deliquency or home loan default rates causing widespread panic across the subprime lending sector.

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