Alt-A 2005 - A Look Back at Popular Loan Programs

Here's a look at some of the loan programs available in 2005 to finance Arizona residential real estate, and where they are now.  Alternative-A (Alt-A) reduced documentation programs (stated income, no ratio, no doc...) made up a majority of new loan originations until mounting defaults resulted in servicing challenges and the loss of demand for securitized mortgage product (towards the end of 2006). 

It is estimated that 85% or more of all mortgages originated in 2009 are now closed with full documentation methods.  Securitizers and rating agencies have raised the bar for entry into homeownership, requiring applicants to prove ability to repay the mortgage note. The mortgage lending industry has began to regain confidence among fixed income investors by appropriately measuring risk and providing transparency to bond holders and consumers.   

Agency full documentation  

Owner Occupied 100% LTV with mortgage Insurance required or 80/20 combo.  Ficos generally started at 620 but some programs allowed minor credit blemishes and FICOs over 580

•  2009 - 80/20 combos are gone (100% second liens are not available). Max financing is 95% in AZ on a limited basis due to restrictions on Mortgage Insurance.

Second Homes 95% LTV with a 620 FICO and two months reserves / mortgage Insurance required or 90/15 combo

• 2009 - 80/95 combos are gone (no second liens to second home purchasers).  Generally 80% available in Arizona due to Mortgage Insurance availability, or a 80/10% seller carry back.

Non-Owner 90% LTV with a 680 FICO and six months reserves / mortgage insurance required

• 2009 - Mortgage insurance no longer available on non-owner properties. Max financing now 80% LTV.

FHA full documentation

Owner Occupied 100% financing with a 97% LTV FHA Loan, plus (seller) funded down payment assistance (DPA)

• 2009 -  96.5% LTV with up front Mortgage Insurance plus monthly mortgage insurance. Seller funded DPA are no longer allowed. DPAs are now available for qualifying first time homebuyers using government programs targeting neighborhoods devastated by economic recession.

Alt-A reduced documentation  

Stated Income - 100% LTV - reduced documentation programs were designed by  "profiling" borrower types. The typical profile of a stated income applicant was a borrower with irregular income because he/she earned seasonal or commission income, and was typically self-employed.   Applicants were qualified using their "stated " annual income for the previous two years. Loans were underwritten and closed under this honor system, as lenders typically did not verify a borrower's stated earnings with the IRS.  Stated income was also extended to wage earners at 100% LTV with FICO minimums set as low as 580. Primary, second, and non-owner residences. Financing over 80% was typically done using a combo loan to avoid mortgage insurance premiums

• 2009 - Stated Income now available thru hard money sources. Max financing generally 50% - 60% LTV

SISA  - Was available at 100% LTV -  Stated Income / Stated Assets (AKA Stated/Stated, Go Fast, Fast & Easy, Expressway, Quick & Simple, etc...). These programs allowed an applicant to state both income and asset reserves. The source of income was verified but not documented. Available to 100% usually with a combo loan.

• 2009 - Stated Income now available thru hard money sources. Max financing generally 50% - 60% LTV

No Ratio - Was available to 100% LTV - No income documentation required to validate the borrower's ability to repay the mortgage or other debts listed on the credit report. No qualifying ratios were calculated. Income source was verified, but not the amount. No Ratio loans were available to 100% with an 80/20 combo loan.

• 2009 - No longer available

NINA  No Income No Assets  - Was available to 100% usually with a comb loan. Source of income verified, not documented.

• 2009 - No longer available

NIVA No Income Verified Assets - Was available to 100% usually with a comb loan.  Source of income verified, not documented.  Assets verified.

• 2009 - No longer available

No Doc -  No Income, No employment no qualifying ratios -  Was available to 100% for primary residences using a combo loan. Because the least amount of documentation was required from the applicant, lenders typically required a higher FICO score for this loan - generally 680 or better.

• 2009 - No longer available

Interest Rates for week ending July 3rd, 2009:

Markets are re-assessing the economic outlook.  Rates improved slighty Thursday and Bond market was closed Friday in observance of the Holiday.

Conforming Conventional 30Yr Fixed  5.625%

Conforming Conventional 15Yr Fixed  5.125%

Conforming Conventional 5/1 ARM 4.750%

Conforming Conventional 5/1 IO ARM 4.875%

Jumbo 5/1 Arm  5.625%

Jumbo 30Yr Fixed 6.625%

FHA 30Yr Fixed 5.625%

FHA 5/1 ARM 4.750%

* Above Conventional rate quotes are as of  7/3/09 on a Conventional $165,000 loan amount, primary residence at 80% loan to value, with a 720 FICO score.  APR includes $1,200 in lender fees and 980 in title charges (title charges may vary).  FHA Quote assumes a $125,000 loan amount and a 680 FICO score, and a 96.5% LTV. Jumbo quote assumes a 75% LTV and 680 FICO score.   Documentation of income and assets required.  No origination or discount points.