Subprime mortgage slipping into default at rapid pace
Bloomberg News | October 8, 2007
By Shannon D. Harrington and Mark Pittman
Subprime mortgage bonds created in the first half of 2007 contain loans that are going delinquent at the fastest rate ever, according to Moody's Investors Service.
The average rate of "serious loan delinquencies" in the securities has been higher than 2006 bonds, Ariel Weil and Amita Shrivastava, analysts at Moody's Investors Service, wrote in a report last week. Serious loan delinquencies are those 60 days or more past due, including properties in foreclosure or already foreclosed upon.
"It is shocking what you see," said Kyle Bass of Hayman Advisors, a hedge fund based in Dallas that has profited from its bet that the U.S. housing market would fall. "Anything securitized in 2007 has got to have the worst collateral performance of any trust I've seen in my life."
Moody's, Standard & Poor's and Fitch Ratings have been downgrading subprime securities issued in 2006 as defaults on the underlying loans rise to record highs. Fitch said last week that it was now reviewing ratings on bonds created in 2007.
Moody's has cut ratings or placed on review 496 bonds backed by first mortgages issued last year, or 3 percent of such bonds created in 2006. Through Sept. 21, S&P had cut ratings on 433 securities from last year and backed by subprime loans, or 9.1 percent of the total. Fitch last week cut ratings on $18.4 billion worth of bonds backed by subprime loans.
Moody's said 6.3 percent of the loans in bonds issued in the first half were seriously delinquent four months after their securitization. The rate was 4.2 percent after four months for bonds created last year, and 4.5 percent for 2001 bonds.
"We see this as a continuation of the trend we had in 2006," said David Teicher, a managing director at Moody's.
"We're studying it, looking at the vintage carefully, as we are with all of the other vintages."
The Moody's report last week compared with research from S&P in March that said 2006 bonds might be the worst-performing ever.
For bonds older than six months, 2006 was the worst year for serious delinquencies since at least 2000. Data in the Moody's report suggest that accelerating delinquencies from 2007 bonds are likely to eclipse 2006.
Foxtons declares bankruptcy
Foxtons, a discount real estate agency based in New Jersey that pioneered selling homes at a 3 percent commission, joined mortgage lenders as a victim of the declining U.S. housing market and filed for bankruptcy protection.
Foxtons, which operated real estate offices in New York, New Jersey and Connecticut, filed for Chapter 11 bankruptcy protection last week in Trenton, New Jersey. The company listed debt of $480,944 and assets of $2.6 million in documents filed in U.S. Bankruptcy Court. Last month the real estate agency laid off 350 of its 380 employees.
Foxtons joins mortgage lenders like American Home Mortgage Investment and New Century Financial that filed for bankruptcy. The National Association of Realtors has forecast that this year will show the first national decline in the U.S. median home price since the Great Depression.
Chapter 11 of the bankruptcy code allows a company to reorganize its business while being protected from creditors.
The company was part of Foxtons Ltd. until this year, when the parent company, which is based in London, accepted a buyout offer from BC Partners. The founder of Foxtons Ltd., Jon Hunt, retained the U.S. branches as part of the transaction.
