The U.S. Alt-A market achieved unprecedented volume of $104.8 billion during fourth-quarter 2006, according to a recently-released report by Standard & Poor's Rating Services. The total surpassed the $103.5 billion record set during second-quarter 2006, and the calendar year closed with three consecutive quarters of at least $100 billion in volume. Standard & Poor's rated a total of $386 billion in Alt-A issuance during the year, up 28 percent from $302 billion in 2005, the agency said. The Alt-A market continued to expand and evolve in 2006, S&P said. New competition from subprime lenders and a proliferation of affordability products led to strong growth, and the changing interest rate environment led to product innovations. Alt-A issuers originated new products to meet borrower demand for more stable fixed-rate loans with affordability options.
"The increased lender competition and rapid product development, as well as the record level of home prices, put increased pressure on underwriting discipline," said Julia Clements, a ratings specialist with Standard & Poor's Residential Mortgage-Backed Securities group. "Consequently, many affordability products came under heightened scrutiny as regulators proposed new guidelines, and the market grew cautious regarding the increased risk." As subprime lenders quickly look to find new sources of loan fundings, many have been pushing into the Alt-A credit market as a way to ensure continued growth and operational stability. In spite of the increasing competition and growth in Alt-A lending, some have expressed concern that the current patch of troubles in the subprime credit sector could spill into Alt-A. "The same subprime lenders that have helped cause the current mess there are now running into Alt-A," said one source, who spoke with Housing Wire on the condition of anonymity. "Does that mean that some borrowers are being squeezed into Alt-A when they might have been considered subprime in the past?" Increasing concern regarding the volatility of the Alt-A market has centered on high-loan-to-value (HLTV) product and second-liens as of late, both of which were cited last week by Alt-A REIT Impac as targets of a recent underwriting criteria change. Most Alt-A lenders surveyed informally by Housing Wire, however, say there is a clear demarcation between subprime and Alt-A credit and that they expect little, if any, problems to emerge. Many Alt-A lenders adjusted their underwriting criteria in the second half of 2006, a move industry analysts say hurt profits during the fourth quarter but will likely keep the credit sector from experiencing the same pains now impacting most of the subprime lending industry.
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