Tuesday, April 10, 2007


The credit crunch is spreading

Next up is Alt-A, not as bad as subprime but not quite prime. (Via TheHousingBubbleBlog.)

Delinquency rates for Alt-A mortgages are rising.

“In February, 2.6 percent of Alt-A loans were delinquent by 60 or more days, up from 1.22 percent a year before, according to FirstAmerican LoanPerformance.”

“Until recently, mortgage companies had been able to sell loans to Wall Street banks and other investors. ‘Now you are selling at par or lower in some instances,’ said Thomas M. McCarthy, a managing director at a real estate investment firm that brokers the sale of mortgages. ‘It really throws the business upside down.’”

“‘Alt-A seems to be located regionally in spots where the market is having a great deal of difficulty, particularly in Las Vegas, Arizona and Florida,’ economist Mark Zandi said.”

As a consequence, trading volume and prices of these mortgages are down.

The head of mortgage research at a European bank in New York said: “It’s not a very liquid market. I would expect there to be a great deal of tiering, depending on the collateral. There are some toxic loans, which are showing extraordinary high defaults. They are typically second liens, low documentation and recent vintages, which people are getting dinged on.”

When that happens first time buyers can't get the financing to buy or they have to cut back on the amount of house they would buy.

While the Fort Worth, Texas-based company saw orders fall in all regions, the biggest decline was in California, where they fell 59 percent to 1,107 homes. California was also the market that saw the biggest dip in dollar value of orders, down about 57 percent to $533.5 million.

Prospective buyers canceled at a 32 percent rate from January to March, down from 33 percent in the prior quarter, but above the usual 16 percent to 20 percent rate, D.R. Horton said.

It has become more difficult for many buyers to obtain mortgages as lenders have tightened their underwriting standards. The steeper decline in the dollar value of D.R. Horton's home orders, relative to the number of orders, suggests that some buyers are "downsizing" to buy homes they can more easily afford.

I would think that this is going to hit consumer spending soon. Mom and Pop Investors has a couple of good posts on real estate.

Tales from the front: Florida Flippers in Trouble

Foreclosures Are Rising Even in Ritzy Chicago Neighborhoods


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