A recent article in National Mortgage Professional Magazine highlighted an analysis by Fitch Ratings that 30% of private label prime mortgages (Wall Street created) were in a negative equity position. Fitch also noted that 12% of all prime private label loans were in some form of delinquency, and will grow higher due to falling home prices and stubbornly high unemployment.
"Fitch has cited borrower equity as the preeminent driver of mortgage default performance in its new rating model. The number of underwater borrowers is likely to increase over time," Fitch reports. Fitch sees the negative equity number going to 50% of all private label prime mortgages.
During the credit bubble years of 2003-2007, private label mortgages maintained a 50%+ market share over "Agency Paper" (Fannie, Freddie, Ginnie (FHA)). Wall Street bypassed Fannie and Freddie, selling mortgage backed securities to investors seeking higher yields than agency paper provided.
In today's post-bubble market, Agency Paper comprises 95% of all new mortgages issued, meaning that the US Government guarantees or insures an investor against loss. The Wall Street mortgage origination machine is nearly non-existent, except for a few private equity groups like Blackrock that have rolled out Jumbo mortgage products to fill the void of loans over $417,000, Fannie and Freddie's loan limits.
Comments