Sub prime and Alt A lenders may have seen its "hey day" as loans made to borrowers with low credit scores, stated income loans, and investor property loans are coming back to haunt them.

Novastar, a leading sub prime lender, announced yesterday that they may not make a taxable profit from 2007 to 2011 due to losses experienced in the sub prime and Alt A lending area.

Wells Fargo, the nations leading sub prime lender, stated that they will be cutting 300 jobs in their sub prime area and that volume would likely drop in after tightening their credit policies in this area.

Foreclosures in the sub prime and Alt A area of the mortgage business are prompting most if not all lenders in this space to tighten their credit policies.

The effect on "A" paper may be the elimination of the 80/20 or "piggyback" loan. Look for the resurgence of PMI. This may not be such a bad thing as PMI is now tax deductible with household income of $110,000 or less.

The next several months could be very interesting in the mortgage business. Let's see how the mortgage industry adapts to the mounting losses due to higher than normal foreclosures.