NEW YORK (AP) -- Fitch Ratings may cut the ratings on up to $160 billion in securities backed by alt-A mortgages as the likelihood that the homeowners will default increases amid the worsening housing crisis.
Any downgrade could trigger more writedowns at financial institutions that hold the securities. Similar ratings cuts on securities backed by subprime loans helped fuel more than $160 billion in write-downs at banks and lenders.
The ratings agency said late Thursday it put 417 residential mortgage-backed securities transactions on a negative watch list. Alt-A mortgages are loans to people without proof of income or minor credit problems. They fall between subprime and prime loans in terms of default risk.
"Accelerating home price declines partly due to the dramatic contraction in... the mortgage markets has been the primary catalyst of the alt-A performance downturn," Fitch managing director Glenn Costello said in a statement.
The Fitch move signals a further spread of troubles with mortgage-backed securities from the subprime realm to more-creditworthy areas. The agency said delinquency levels for bonds backed by alt-A loans have been rising rapidly in recent months.
This week, creditors to Thornburg Mortgage Inc. (TMA) demanded more collateral from the mortgage lender after a sudden decline in market prices for bonds backed by pools of alt-A mortgages sullied its balance sheet.
Lenders to a mortgage-bond fund run by Carlyle Capital Corp. started liquidating their assets after that firm was unable to meet margin calls precipitated by falling values in alt-A backed bonds.
On Thursday, the Mortgage Bankers Association reported that foreclosure rates in the fourth quarter rose to a record level as home prices continue to decline. When prices were rising, strapped borrowers were able to either refinance their loan for better terms or sell the house. Now, for the first time on record since 1945, homeowners have less than 50% equity in their homes, meaning they owe more than they own.
Fitch said its review will be based on a model that assumes home prices will fall 25% from peaks in 2006. Prices are down about 10% so far.
"As in the subprime market, although to a lesser degree, the willingness of alt-A borrowers with high Loan-to-Value mortgages to 'walk away' from mortgage debt has contributed to high levels of early default," Fitch said.
Fitch said it will first review $10 billion of subordinate alt-A-backed securities and then look at ones with "AAA" ratings. It expects to complete the review by the end of April. See Also
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