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Wednesday, July 18, 2007

More on "Containment"

by Calculated Risk on 7/18/2007 12:59:00 PM

Greg Ip at the WSJ asks: Will Subprime Problems Remain Contained?

Despite fears in the markets and press that subprime problems would trigger broader contagion, the Federal Reserve has repeatedly predicted that what started in subprime would stay in subprime. Chairman Ben Bernanke largely echoed that sentiment in congressional testimony today, but displayed some concern that troubles might spread.

A key reason for that confidence is [the following] chart, from page 8 of the Monetary Policy Report released today, showing that the sharp rise in delinquencies has been confined to one class of loan: subprime variable-rate mortgages.
Here is the referenced report: Monetary Policy Report to the Congress

Monetary Policy Report Delinquency RatesClick on graph for larger image.

Note that Subprime delinquency rates are through May, but Prime delinquency rates are only through April.

And where are the Alt-A delinquency rates? Just yesterday, Fitch and Moody's expressed concern about Alt-A delinquency rates:
Moody's has noted a negative trend in delinquencies for first-lien, Alt-A mortgage loans originated in late 2005 and 2006. Recent data shows that these first-lien, Alt-A mortgage loans have delinquency rates that are higher than original expectations ...
Because of recent events, and excluded data points, this chart doesn't suggest containment to me in the mortgage market. And it doesn't include increasing concerns about CRE loans, and lower quality corporate debt.