Fannie Mae losses, dumping Alt-A

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MalibuRenter_IHB

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http://www.nytimes.com/2008/08/09/business/09fannie.html



"Fannie Mae, the nation?s largest mortgage finance company, offered additional evidence on Friday that the housing slump was deepening by reporting a $2.3 billion loss in the second quarter.



The company?s revenue was up slightly, to $4 billion from $3.8 billion, during the three-month period that ended June 30."



Yes, Fannie Mae's losses were 58% of their revenues for the quarter. Damn. That's going to leave a mark.



"The company will stop buying so-called Alt-A mortgages ? riskier loans made to borrowers who provide less information ? by the end of the year."



Ooooohhh. Set your stopwatches and pull out the counters. Let's see who else dumps it and how fast.
 
What exactly is Alt-A?



For example, if someone gets a jumbo loan from one of the major banks with 30% down, with a credit score of 750, and back end ratio of 35% , stated income, does that consider Alt-A or prime?
 
[quote author="irvine123" date=1218269394]What exactly is Alt-A?



For example, if someone gets a jumbo loan from one of the major banks with 30% down, with a credit score of 750, and back end ratio of 35% , stated income, does that consider Alt-A or prime?</blockquote>


I think anything stated would have to be Alt-A.
 
[quote author="ipoplaya" date=1218269967][quote author="irvine123" date=1218269394]What exactly is Alt-A?



For example, if someone gets a jumbo loan from one of the major banks with 30% down, with a credit score of 750, and back end ratio of 35% , stated income, does that consider Alt-A or prime?</blockquote>


I think anything stated would have to be Alt-A.</blockquote>


It depends on when the loan was done. In 2006 that would be A-paper jumbo, just input the data into the online software and viola you have an approval. Maybe in 2008 that would be considered ALT-A, but still sounds like it would be A-paper to me.



ALT-A was more the higher LTVs/CLTVs, or stated income and stated assets (although if you got an approval that said approve with no assets or income, then you were A-paper), or a 700 FICO 80/20 financing. ALT-A is really a gray area as to what it is, and every lender had their own definition. The best way to describe it is even jumbo loans used the Fannie Mae desktop underwriting software, if it got approved for everything else but the loan amount it would be considered A-paper, if it got denied because of loan amount and FICO score, then it was considered ALT-A.



I doubt that really clears things up, but it's a start and I might post more later.
 
[quote author="graphrix" date=1218270963][quote author="ipoplaya" date=1218269967][quote author="irvine123" date=1218269394]What exactly is Alt-A?



For example, if someone gets a jumbo loan from one of the major banks with 30% down, with a credit score of 750, and back end ratio of 35% , stated income, does that consider Alt-A or prime?</blockquote>


I think anything stated would have to be Alt-A.</blockquote>


It depends on when the loan was done. In 2006 that would be A-paper jumbo, just input the data into the online software and viola you have an approval. Maybe in 2008 that would be considered ALT-A, but still sounds like it would be A-paper to me.



ALT-A was more the higher LTVs/CLTVs, or stated income and stated assets (although if you got an approval that said approve with no assets or income, then you were A-paper), or a 700 FICO 80/20 financing. ALT-A is really a gray area as to what it is, and every lender had their own definition. The best way to describe it is even jumbo loans used the Fannie Mae desktop underwriting software, if it got approved for everything else but the loan amount it would be considered A-paper, if it got denied because of loan amount and FICO score, then it was considered ALT-A.



I doubt that really clears things up, but it's a start and I might post more later.</blockquote>
Yeah, when I bought my condo back in 2004 they didn't ask for anything except for 2 bank statements to verify my 20% downpayment and a $445k jumbo loan (had a middle FICO of 755 back then). I considered that loan Alt-A since it wasn't fully documented. It sounds like we are getting closer and closer to the industry only doing fully documented loans with 680+ FICOs with at least 10% equity (excluded FHA/VA loans).
 
I thought the terms subprime, Alt-A, and prime actually referred to the borrower and their credit ratings and were only mistakenly used to designate any type of loan.


Example: A prime borrower could get a Neg am I/O adjustable rate loan or a subprime borrower could get a 30 year fixed.
 
There has been a lot of talk over different media sources about how the alt-a will bring the next big wave of default.



If someone obtained a loan with good credit and 20% or 30% down, stated income, Int only loan, then IMO most those people should be able to weather the rate change relatively ok provided they still have a job.



If someone with min to no down, low credit score int only loan, them IMO most of them will have a hard time refi.



I remember talking to the sales person at the track I evenfully bought in 2005. He told me most of the buyers have a family with children and put down at least 20%. By looking at what most of my neighbours do for a living, I don't know how much worse it will get in comparision with the past 18 months unless we have a total melt down in economy. That being said, I am just looking at where I live.
 
If you want a long Tanta post on ALT-A, and you WANT IT NOW! <a href="http://calculatedrisk.blogspot.com/2008/08/reflections-on-alt.html">Click here then</a>.



BTW Irvine123, the ALT-A loans from the last three years are performing as badly as subprime was a year ago. The average CLTVs were below 80% and 700ish FICOs, so it doesn't matter how much down they had or what their FICO was, they are all subprime now.
 
[quote author="graphrix" date=1218546299]If you want a long Tanta post on ALT-A, and you WANT IT NOW! <a href="http://calculatedrisk.blogspot.com/2008/08/reflections-on-alt.html">Click here then</a>.



BTW Irvine123, the ALT-A loans from the last three years are performing as badly as subprime was a year ago. The average CLTVs were below 80% and 700ish FICOs, so it doesn't matter how much down they had or what their FICO was, they are all subprime now.</blockquote>


It's too bad we can't get that data breakdown by zipcode. It would be useful if you were considering buying in the next 12-36 months. If anything, it would give us a window at what a festering cesspool Village of Columbus really is.
 
[quote author="no_vaseline" date=1218578646][quote author="graphrix" date=1218546299]If you want a long Tanta post on ALT-A, and you WANT IT NOW! <a href="http://calculatedrisk.blogspot.com/2008/08/reflections-on-alt.html">Click here then</a>.



BTW Irvine123, the ALT-A loans from the last three years are performing as badly as subprime was a year ago. The average CLTVs were below 80% and 700ish FICOs, so it doesn't matter how much down they had or what their FICO was, they are all subprime now.</blockquote>


It's too bad we can't get that data breakdown by zipcode. It would be useful if you were considering buying in the next 12-36 months. If anything, it would give us a window at what a festering cesspool Village of Columbus really is.</blockquote>


You don't need a window. The festering at VoC has already announced itself like a 2' X 4' to the head... Many REOs already have ripped through Alexandria (Desert Willow comes to mind) and they have done a good bit of damage in Westbourne recently. Sonora street has had multiple REOs already. Just in the last month, another two NODs came through, another on Sonora and one on Honeybee. The early Madison buyers are $150K under purchase price so I expect they'll start defaulting too.
 
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