by Calculated Risk on 3/29/2007 03:01:00 PM

From Indymac: Additional Credit Loss Analysis on Alt-A and Subprime Lending

“Based on an objective analysis of the facts, talk of the ‘subprime contagion’ spreading to the Alt-A sector of the mortgage market is, in our view, overblown. Cumulative mortgage industry Alt-A loan losses over the last five years are 1/17th the loan losses for subprime loans based on the FALP data. In addition, as of Dec. 31, 2006, the 30+day delinquency percentage for Alt-A loans in the mortgage industry was 5.0 percent as compared to 21.7 percent for subprime loans, suggesting that the differential in loan loss performance for Alt-A versus subprime will continue into the future.”
Michael W. Perry, Indymac’s Chairman and CEO, March 29, 2007

I don't think anyone was suggesting that Alt-A delinquency rates would be as high as subprime. So Mr. Perry is creating a strawman here.

The suggestion is that Alt-A would see a substantial increase in delinquency rates, and, as a result, the sector specific credit crunch (with tighter lending standards) would also impact Alt-A. This is already happening. Yesterday I posted the analysis from ResCap of their new lending standards on 2006 originations. ResCap estimated that their new guidelines would have eliminated 20% of Alt-A loans in 2006.

The subprime contagion is already here.