The slow train wreck continues. We can't help but rubber kneck. I read this today and wanted to share it with you.
By Jody Shenn
Feb. 9 (Bloomberg) -- JPMorgan Chase & Co. analysts almost doubled their projections for losses on some prime-jumbo mortgages underlying securities, created at the start of the U.S. housing slump, because of soaring defaults.
Losses on so-called hybrid adjustable-rate mortgages backing 2006 and 2007 prime-jumbo securities will reach 8 percent to 10 percent, according to a Feb. 6 report by New York- based analysts John Sim and Abhishek Mistry.
“The pickup of defaults in prime during the second half of 2008 has caused us to nearly double our loss projections on prime hybrids,” the analysts wrote.
Defaults on home loans not labeled as “subprime” that back so-called non-agency mortgage securities, the debt that sparked the global financial-market meltdown, have soared as home prices continue to tumble and the U.S. recession deepens. The share of prime-jumbo mortgages at least 60 days late climbed 0.71 percentage point to 5.29 percent in the month covered by January bond reports, according to JPMorgan.
About $500 billion of prime-jumbo bonds exist, according to Memphis, Tennessee-based FTN Financial. Jumbo loans are larger than what government-chartered Fannie Mae and Freddie Mac can buy or guarantee, currently $417,000 in most areas and as much as $625,500. Hybrid ARMs offer a few years of fixed interest rates, before switching to payments that vary with indexes.
Lower-Loss Sector
Losses on prime-jumbo mortgages with completely fixed rates in “recent vintage” bonds will be lower than losses on hybrid ARMs, partly because more of the borrowers will be able to qualify to refinance out of the loans, JPMorgan said.
“Although historical experience would lead us to increase prime fixed losses to 4 percent, faster prepayments could prevent many future defaults, keeping losses in the 2 percent range, a decrease from last month’s 2.3 percent to 2.8 percent” projection, the analysts wrote.
The share of Alt-A mortgages underlying bonds at least 60 days late, in foreclosure or already turned into seized properties climbed 1.53 percentage points last month to 22.88 percent, JPMorgan said. Defaults on so-called option ARMs rose 2.47 percentage points to 30.96 percent, the report said.
With the market for prime-jumbo mortgage bonds closed since early 2008 and banks issuing fewer loans to keep on their books, the average rate on a typical 30-year fixed-rate jumbo mortgage was 6.91 percent on Feb. 6, compared with 5.44 percent on similar “conforming” loans, according to Bankrate.com data.
Shares of Thornburg Mortgage Inc., a mortgage real-estate investment trust that specializes in jumbo-loan debt, and Redwood Trust Inc., a REIT with a similar focus, have fallen almost 100 percent and 75 percent over the past 24 months.
Santa Fe, New Mexico-based Thornburg gained 2 cents to 10 cents in over-the-counter trading as of 4:00 p.m. in New York today, while Mill Valley, California-based Redwood climbed 42 cents to $15.30 in New York Stock Exchange composite trading.
By Jody ShennFeb. 9 (Bloomberg) -- JPMorgan Chase & Co. analysts almost doubled their projections for losses on some prime-jumbo mortgages underlying securities, created at the start of the U.S. housing slump, because of soaring defaults.
Losses on so-called hybrid adjustable-rate mortgages backing 2006 and 2007 prime-jumbo securities will reach 8 percent to 10 percent, according to a Feb. 6 report by New York- based analysts John Sim and Abhishek Mistry.
“The pickup of defaults in prime during the second half of 2008 has caused us to nearly double our loss projections on prime hybrids,” the analysts wrote.
Defaults on home loans not labeled as “subprime” that back so-called non-agency mortgage securities, the debt that sparked the global financial-market meltdown, have soared as home prices continue to tumble and the U.S. recession deepens. The share of prime-jumbo mortgages at least 60 days late climbed 0.71 percentage point to 5.29 percent in the month covered by January bond reports, according to JPMorgan.
About $500 billion of prime-jumbo bonds exist, according to Memphis, Tennessee-based FTN Financial. Jumbo loans are larger than what government-chartered Fannie Mae and Freddie Mac can buy or guarantee, currently $417,000 in most areas and as much as $625,500. Hybrid ARMs offer a few years of fixed interest rates, before switching to payments that vary with indexes.
Lower-Loss Sector
Losses on prime-jumbo mortgages with completely fixed rates in “recent vintage” bonds will be lower than losses on hybrid ARMs, partly because more of the borrowers will be able to qualify to refinance out of the loans, JPMorgan said.
“Although historical experience would lead us to increase prime fixed losses to 4 percent, faster prepayments could prevent many future defaults, keeping losses in the 2 percent range, a decrease from last month’s 2.3 percent to 2.8 percent” projection, the analysts wrote.
The share of Alt-A mortgages underlying bonds at least 60 days late, in foreclosure or already turned into seized properties climbed 1.53 percentage points last month to 22.88 percent, JPMorgan said. Defaults on so-called option ARMs rose 2.47 percentage points to 30.96 percent, the report said.
With the market for prime-jumbo mortgage bonds closed since early 2008 and banks issuing fewer loans to keep on their books, the average rate on a typical 30-year fixed-rate jumbo mortgage was 6.91 percent on Feb. 6, compared with 5.44 percent on similar “conforming” loans, according to Bankrate.com data.
Shares of Thornburg Mortgage Inc., a mortgage real-estate investment trust that specializes in jumbo-loan debt, and Redwood Trust Inc., a REIT with a similar focus, have fallen almost 100 percent and 75 percent over the past 24 months.
Santa Fe, New Mexico-based Thornburg gained 2 cents to 10 cents in over-the-counter trading as of 4:00 p.m. in New York today, while Mill Valley, California-based Redwood climbed 42 cents to $15.30 in New York Stock Exchange composite trading.
