Are 50-year amortization schedules next?
Mark Douglass, a senior director at Fitch Inc., said on a teleconference Thursday that "one or two issuers" of securities have recently told the rating agency that they were considering schedules that long.
"Not that that has gone anywhere yet, but we've certainly had some queries," Mr. Douglass said.
The number of 40-year offerings has increased rapidly this year, particularly in the subprime sector. (About 60% of California mortgage brokers expect 40-year fixed-rate mortgages to be more popular among homebuyers next year, for affordability reasons, according to a survey of 300 brokers that the California Association of Mortgage Brokers conducted in November and released Thursday.)
Also on the call, Suzanne Mistretta, a Fitch director, said the rates on roughly 1.5% of securitized prime mortgage debt, 5% of alternative-A debt, and a third of subprime debt would adjust for the first time next year.
Ms. Mistretta cited data from LoanPerformance, a San Francisco mortgage analytics and data unit of First American Corp. of Santa Ana, Calif.
Glenn Costello, the co-head of Fitch's residential mortgage bond group, said the performance of such loans should drop from the "stellar" level of recent years, partially because of payment shocks to borrowers from rate resets.
"But we're not calling for any significant decline in 2006 performance," he said.
Mr. Douglass said he believes "the consumer has actually become better educated" about the workings of option adjustable-rate mortgages and other negative-amortization ARMs, because of a flurry of bad press and regulatory concerns.
Some observers say such products are rapidly falling out of favor, but Mr. Douglass reported only "a stabilization" in the issuance of securities backed by such loans in the second half.
On the other hand, the growing popularity of 40-year terms, including those on fixed-rate loans, are eating into demand for interest-only periods, he said.