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Fitch: Some Prime Mortgages Will Soar 15 Percent

Thursday, 14 Jan 2010 04:19 PM

More than $47 billion of prime and Alt-A mortgages are due to recast from interest only payments to fully amortizing payments over the next 12 months, Fitch Ratings reports.

This recast exposes borrowers to an average payment increase of 15 percent and possibly higher if interest rates increase.

During the next two years, a total of $80 billion of prime and Alt-A loans, and a total of $50 billion subprime loans, are due to recast.

This payment shock will have a substantial effect on the recasting
 population, according to Managing Director Roelof Slump.

“Sixty-day
 delinquency rates have risen over 250 percent in the 12 months following
 previous recasts for prime and Alt-A loans," said Slump.

And even though
 Fitch’s current ratings consider the risks of upcoming interest-only recasts, 
mortgage pools with significant interest-only loan concentrations may
 be downgraded if performance is worse than anticipated, he said.

Recasts, the report notes, typically have a significant impact on loan performance.

While
 only 3.3 percent of prime loans are 60 or more days delinquent prior to recast, 
 delinquencies the year after recast increased to 9.3 percent.

Similar effects
 have been seen in Alt-A and subprime, with delinquencies increasing from
 12 percent to 29 percent for Alt-A, and from 20 percent to 58 percent for subprime.

Commercial real estate is not faring any better.

In fact, speaking at a recent bank-sponsored healthcare conference, JP Morgan Chase head Jamie Dimon said, "Commercial real estate is a train wreck, but it's already happened."

Dimon noted that, with roughly $3.5 trillion in commercial real estate loans outstanding, a sizable portion of that debt needs to be refinanced each year; the problem is that the value of the properties backing those loans has fallen.

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More than $47 billion of prime and Alt-A mortgages are due to recast from interest only payments to fully amortizing payments over the next 12 months, Fitch Ratings reports. This recast exposes borrowers to an average payment increase of 15 percent andpossiblyhigher if...
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2010-19-14
 

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