By Alan White
In a new presentation entitled Update on U.S. RMBS, Performance, Expectations, Criteria, Fitch Ratings now projects that 50% of the subprime mortgages from the fourth quarter of 2006 in rated securitizations will end in foreclosure. They also project loss severity of 60%, meaning that investors will recover only 40% of the principal and interest due on the mortgages after foreclosure, resulting in losses of 30%. These numbers are astounding. Fitch makes similar predictions for the other 2006 and 2007 "vintages" of subprime mortgages. Given total subprime mortgage originations for the two years of almost $1 trillion, a loss rate of 30% would represent $300 billion. As Senator Dirksen once said, "a billion here, a billion there. . . ."
Needless to say, this will also means millions of homes lost.