From Bloomberg:

S&P Cuts Alt-A Mortgage Bonds; Analysts Warn on Prime

Should already be priced in – been talked about for a long time.

Standard & Poor’s reduced its ratings on about $7 billion of Alt-A mortgage securities, citing a sustained surge in delinquencies during the past five months on loans considered a step above subprime.

Since July, late payments on Alt-A loans in bonds issued in 2005 have increased 37.3 percent to 8.62 percent, while delinquencies for such mortgages in 2006 securities rose 62.1 percent to 11.64 percent, S&P said.

Not catastrophic yet.

And this is all aging, static pool analysis now that new loans aren’t being made.

The article also has some analyst comments on prime loans:

Prime “jumbo” mortgages from recent years packaged into securities also have rising delinquencies that may create losses among some bonds with investment-grade ratings, according to reports yesterday by New York-based securities analysts at Credit Suisse Group and UBS AG. …

Yes, but those delinquencies are still reasonably low.

This can all deteriorate if aggregate demand falls, the economy weakens, and income and employment falls. But delinquencies don’t cause falling aggregate demand, though they may be a symptom of it and certainly are signs of possible Main Street weakness.

“It’s not just a subprime problem,” Joshua Rosner, managing director at New York-based research firm Graham Fisher & Co., said …


2 Responses

  1. Warren, your statements about the scope of the mortgage credit contagion being limited to wall street and not main street makes lots of sense and also from a common sense point of view, I’ve observed that when someone stops paying their mortgage of say 2K/month, thats all the more money they have for consumption. Anecdotally, I have observed this here in South Florida.

    Larry Kudlow challenges bearish guests on his CNBC show to demonstrate where the economic weakness is and they consistently don’t provide any credible arguments other than to say that economic forecasts are pointing towards GDP slowdowns for 2008. The bears talk about credit tightening, but I think its mostly limited to subprime housing. Some of them have mentioned corporate profits ( witness Oracle yesterday).

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