Jumbo RMBS Delinquencies Nearing Third Year of Rises
The prime jumbo mortgage market, especially in California and Florida, continues to deteriorate in the residential-mortgage backed securities (RMBS) space, posting rising 60-day or more delinquencies for the 33rd consecutive month, according to Fitch Ratings. And to jumbo market players, the trend is expected to continue for some time. "There is a possibility that over any upcoming given month there will be an upswing in borrowers who come current," Grant Bailey, a senior director for the RMBS group at Fitch, tells HousingWire, "but the biggest obstacle in the private-label market remains: a high percentage of these borrows are in negative equity." The jumbo market in the United States is worth an estimated $376bn and dropping. The five states with the highest volume of prime jumbo loans outstanding -- California, New York, Florida, Virginia, and New Jersey -- represent approximately two-thirds of total delinquencies. A report out today by the credit-rating agency notes that the California prime jumbo loan performance continued to weaken in February, with 60+ day delinquencies rising to 11.6% from 11.3% in January, compared to 4.7% in February 2009. During the first two months of 2010, Florida had the biggest jump -- at nearly 1% -- of the five states with the highest volume of jumbo loans outstanding. New Jersey was second of the five states with an 80bps increase over the same period. Delinquencies started rising in this space as far back as 2007, primarily due to borrowers who had taken out loans they couldn't really afford in the first place. Despite the massive tightening of credit since then, delinquency started ratcheting up in 2H08, running parallel to rising levels of unemployment. "That silicon valley executive may have lost his job more than a year ago," said Andrew Jeffery, a principal at Cirios Real Estate in San Francisco, who adds he is seeing a rise in real real-estate owned (REO) jumbo properties. "For a long time sellers had a capital cushion, and thought they could sit on the investment. Now they are facing the reality that their reserve funds are greatly diminished." This week alone, Cirios listed two such jumbo REO properties, and the momentum appears to be picking up. "We've seen a big rise in distressed sales," said Jeffery, "and we've seen a big rise in distressed investors." Bailey adds that such developments in the delinquency space will likely continue to keep Jeffery busy. "In the 05, 06, 07 vintages, close to 50% of borrowers are underwater," Bailey said. "That keeps a negative pressure on borrowers and, therefore, we keep a negative outlook on delinquencies." Write to Jacob Gaffney.