April showers bring…serious May defaults. Housing Wire reports that 60+ day delinquency percentages and roll rates, a method used to determine future delinquencies, increased for Alt-A loans in every vintage during May. Loss severity — the average amount lost relative to unpaid principal balance — reached 41.4 percent for all Alt-A first liens in foreclosure during the most recent rolling six month period through May; that was up from a 37.6 percent rolling average one month earlier. That’s a huge and unexpected leap, considering that Standard and Poor’s Rating Services had predicted a 35 percent loss severity on Alt-A loans.

Alt-A loans are the normally big-buck, no-money-down loans given to those with a slightly checkered credit history. They’re what some analysts call NINJA loans (No Income, No Job/Assets), and in Minnesota, they’re concentrated in the outer ring suburbs. According to a February report from the Federal Reserve Bank of New York, 14.4 loans per 1,000 housing units in Minnesota were Alt-A . And 23.9 percent of borrowers with those Alt-A loans had a late payment in the last 12 months. The map shows just how concentrated they are in Washington, Sherburne, Wright, and Scott County.

While Alt-A loans are expected to peak, or reset at a new rate, in 2009, analysts say the new higher reset rate isn’t the only problem, since many banks are willing to negotiate a fairer rate in light of the housing crash. In fact, the biggest problems facing those with Alt-A loans are the lack of equity and the decline in home values. In the Twin Cities, home values, on average, have declined by 15.5 percent. That leaves those with Alt-A loans, often requiring interest-only payments for the first few years, with loans for far more than the home is worth. For that reason, defaults will increase as homeowners choose either short sales or foreclosures as the only options for getting out of underwater.