The market's manic reaction to mortgage stocks these days is good for a giggle -- so long as you don't own the stocks.
The response to the fallout from the implosions at Novastar Financial
After its shares were pummeled along with the subprimes, Impac Mortgage Holdings
Perish the thought! Impac's loans are "Alt-A," a designation which includes stated income loans, commonly called "liar" loans.
Personally, I don't buy Impac's feel-good story. Part of my skepticism stems from whispered scuttlebutt. I've gotten email from some loan officers (not Impac's, mind you) warning of impending doom in the stated-income loan market. Even big banks, so the claim goes, are booking huge percentages of liar loans.
One correspondent asked me a very good rhetorical question: "Why do people with good credit scores need stated income loans?" The answer, he believed, was that fudging income numbers was the only way to qualify to buy as much house as they wanted. What happens when people who can't afford the house they're in see an ARM reset?
Default, I'm guessing.
Impac's SEC filings don't seem to reveal how much of its biz is in "stated income," but this article reports that in 2005, Impac ran a seminar called "How to Make a Fortune in the Alt-A Market." Remarks attributed to an Impac Lending Group's senior vice president report that 75% of that business is stated income, and that half of the borrowers "can't or won't tell us where their down payment came from."
Sounds like pretty shaking underwriting to me.
But if you think that's an ugly bit of data, just look at Impac's filings. The Q3 2006 report detailing mortgages held as securitized mortgage collateral shows 60-day delinquencies that more than doubled year over year. More than half the mortgages were in bubble-icious California, and only 79% of the properties were owner-occupied. Oh yeah, 85% of the loans were ARMs, while 73% of the loans were interest-only.
Looks to me like there's plenty of potential for major problems, subprime or non-subprime.
Comments? Bring them here.