Pacific Investment Management Co., the money manager that first predicted a collapse in U.S. home prices almost two years ago, said today that losses on subprime mortgages will spread to other ``aggressively underwritten'' loans.
By Mark Pittman
March 16 (Bloomberg) -- Pacific Investment Management Co., the money manager that first predicted a collapse in U.S. home prices almost two years ago, said today that losses on subprime mortgages will spread to other ``aggressively underwritten'' loans.
Defaults could spread to borrowers with so-called ``Alt-A'' or jumbo mortgages, according to a report distributed to clients today by the mortgage group at Newport Beach, California-based Pimco, which oversees about $668 billion. Alt-A's are loans to borrowers with good credit scores who fail to meet other criteria for top- rated financing. Jumbo mortgages are loans of more than $417,000.
``It is likely that the poor performance we have seen in subprime loans will carry over to some degree into the most aggressively underwritten loans in the Alt-A and possibly Jumbo prime markets,'' Pimco said in the report. ``We do not believe that prime loans will be materially affected.''
Pimco's comments dovetail with those of former Federal Reserve Chairman Alan Greenspan, who said this week he expects fallout from rising subprime mortgage defaults to spread to other parts of the economy, especially if home prices decline. Pimco said today that the housing price decline may cut gross domestic product, the value of all U.S. goods and services, by 1 percent this year.
More than 30 subprime lenders have closed in the U.S. since late 2006, according to the report from a team led by Pimco analyst Scott Simon. Simon did not return a telephone message. Pimco is a unit of Munich-based insurer Allianz AG.
Alt-A loans make up about 20 percent of mortgages issued last year, according to Credit Suisse. Alt-A and jumbo mortgages can't be included in bonds guaranteed by government-sponsored entities such as Fannie Mae or Freddie Mac.
more
READ MORE: Bloomberg