Alt-A Issuance Drops Dramatically in Third Quarter: Report

Following a second quarter in which issuance of Alt-A mortgages reached a record high, it decreased sharply in third-quarter 2007, according to a report released Wednesday by Standard & Poor’s Ratings Services.

The dramatic drop, to $39.3 billion in issuance from the previous quarter’s all-time high of $109.5 billion, was the result of what S&P called “unprecedented credit and liquidity disruptions…that emerged in the U.S. residential mortgage market over the summer in response to the rapidly deteriorating housing sector.”

“Severe delinquencies in the 2006 and 2007 subprime and Alt-A vintages have risen at an extremely high and unexpected rate in recent months, especially during the latter part of the second quarter and through the third quarter, and there are no signs of the trend abating in the near term,” said Standard & Poor’s Ratings Services credit analyst Jeff Watson, a director in the agency’s RMBS group.

“In response, investor demand for U.S. RMBS has fallen sharply, which has limited a key source of funding available to originators and issuers from the secondary market.”

Standard & Poor’s said it expects Alt-A issuance to further decline during fourth-quarter 2007 and into early 2008 as the industry continues to feel the effects of limited liquidity in the U.S. RMBS market.

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