April delinquencies fall for high-risk loans

NEW YORK – May 11, 2010 – Fitch Ratings on Monday said late payments on high-risk residential mortgages known as 'Alt-A' loans fell last month for the first time in four years as more borrowers caught up on their payments and modified their loans.

Fitch said delinquencies on so-called 'Alt-A' residential mortgage-backed securities declined to 34.1 percent in April from 34.4 percent in March - marking the first month-over-month decline in that category since April 2006.

However, last month's delinquency rate was still up from 27.4 percent in April 2009. Fitch also cautioned that about 8 percent of current 'Alt-A' loans and 35 percent of subprime loans have been modified from their original terms, and consequently have a substantial risk of going back in default.

'Alt-A' mortgages required little or no documentation of the borrower's ability to pay. They were a key part of the surge in subprime mortgage delinquencies that helped trigger a broader downturn in the housing market starting in 2007. Mortgages in California and Florida represent more than 50 percent of the nationwide volume of 'Alt-A' loans outstanding.

Fitch said late payments on subprime mortgages offered to borrowers with shaky credit ratings fell for the second straight month in April, to 45.2 percent from 46.3 percent. However, prime jumbo delinquencies for those with more solid credit ratings rose slightly as unemployment benefits begin to run out for many and job openings are slow to return. After nearly tripling in 2009, those delinquencies are up another 98 basis points since the beginning of the year.

Vincent Barberio, a Fitch managing director, said April's month-to-month declines for Alt-A and subprime delinquencies "may be a signal that residential mortgage-backed securities performance is beginning to turn the corner."

"The next few months will be a better indicator of whether we're witnessing the beginnings of a legitimate turnaround or a short-term seasonal effect of tax refunds," Barberio said.

Also Monday, government-controlled lender Fannie Mae asked taxpayers for another $8.4 billion after reporting another steep loss for the first quarter. Though there have been some signs of stability in the housing market this year, Fannie Mae warned that mortgage defaults will remain elevated, foreclosures will increase and that home prices will decline slightly.