Enough subprime, let's talk housing debacle: James Saft

By James Saft

LONDON (Reuters) - Troubles are surfacing with loans made to better-off U.S. homebuyers in a worrying trend that indicates what's been termed "The subprime crisis" may need to be rebadged "The housing crisis" and eventually maybe just "The crisis."

While signs are tentative so far, credit rating downgrades and payment delinquencies are happening more frequently in what is called the "Alt-A" mortgage loan market, the slice just above subprime in creditworthiness.

The upshot is more pain for investors in mortgages, less appetite for other risky credits, such as leveraged buyouts, falling U.S. house prices, and the big one, a threat to consumption in the United States.

In the past week, both Moody's and S&P have announced downgrades and reviews for downgrades for securities backed by Alternative-A loans, which are typically made to borrowers with less proof of their finances than prime borrowers or who have small credit problems in their past.

Delinquencies on Alt-A have been rising faster than for subprime, though at much lower levels. Between January and March, delinquencies for Alt-A rose by 17 percent, to 3.05 percent of loans, while subprime delinquencies rose by about 3.5 percent, to 14.83 percent, according to First American LoanPerformance data.

Fitch Ratings, too, has said it is "very concerned" about Alt-A loans, especially those with low early repayments which aren't even sufficient to pay all of the interest.

The idea that problems in subprime were contained and would not spread to the general economy has been maintained by U.S. central bankers and policy makers. It has also been the market's central assumption and underpinned the dizzying rise of stocks to new highs.

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