NEW! CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Tuesday, July 31, 2007

Moody's Says Some `Alt A' Mortgages Are Like Subprime

by Calculated Risk on 7/31/2007 04:38:00 PM

From Bloomberg: Moody's Says Some `Alt A' Mortgages Are Like Subprime (hat tip Hong Kong Fuey)

Moody's Investors Service described some so-called Alt A mortgages as no better than subprime home loans, saying it will change how it rates related securities after failing to predict how far delinquencies would rise.

The ratings firm said today its expectations for losses on Alt A mortgages will rise between 10 percent and 100 percent, depending on whether a loan pool has a lot of debt extended to borrowers with low credit scores and little money for down payments. It's also raising loss expectations when borrowers don't fully document their incomes.

``Actual performance of weaker Alt-A loans has in many cases been comparable to stronger subprime performance, signaling that underwriting standards were likely closer to subprime guidelines,'' Marjan Riggi, Moody's senior credit officer, said in a statement. ``Absent strong compensating factors, we will model these loans as subprime loans.''

Moody's said in a separate statement that its expectations for losses on ``option'' adjustable-rate mortgages, part of the Alt A market, would rise even farther. Initial minimum payments on the loans fail to cover the interest borrowers owe, creating growing balances and possible payment spikes.