S&P to Downgrade Coming to Alt-A Mortgage Backed Securities

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

Market Watch is reporting tonight that Standard & Poors is considering downgrades to 484 mortgage backed securities made up of primarily Alt-A mortgage loans. Alt-A mortgages have credit characteristics slightly lower than prime mortgages but are often underwritten with no income documentation and with exotic terms such as negative amortization and interest only features. They were a popular avenue for investment property financing as well.

From Market Watch:

Standard & Poor’s said on Friday that it may cut ratings on 484 classes of residential mortgage securities backed by so-called Alt-A home loans. The influential agency also warned that it could downgrade ratings on 63 classes of net interest margin securities, a type of derivative that’s tied to the Alt-A backed securities in question. “These actions reflect a persistent rise in the level of delinquencies among the Alt-A mortgage loans supporting these transactions,” S&P said in a statement.

The early argument was that mortgage problems were contained to subprime loans and that Alt-A and prime loans were not affected by increasing default rates. As we’ve moved along it has become quite clear that to call this a subprime problem is a joke; Alt-A and prime loans are facing similar problems and increasing defaults. This downgrade shows the movement of the problem through home lending – one that will only continue through the next several years.