Alt-A ...the new sub-prime ?

I am starting to see a lot of analysts, industry insiders and mortgage brokers discuss

Alt-A as the new Sub-prime.

Earlier today,

Freddie Mac posted a financial loss that was more than 3X larger than expected.

Note, that the losses were concentrated in Arizona, California, Florida and Nevada.

The news was especially disturbing for real estate and the economy as mortgage delinquinces spread past the sub-prime category into borrowers with good credit into what are called Alt-A mortgages.  

Freddie Mac Chief Financial Officer Buddy Piszel told The Associated Press that the credit problems are emerging mostly in the company's Alt-A portfolio,

(Alt-A lonas) contain mortgages with high risk factors like undocumented borrower income or no down payments

Alt-A mortgages typically

• Reduced borrower income and asset documentation (for example, "stated income", "stated assets", "no income verification")
• Borrower debt to income ratios above what Fannie or Freddie will allow for the borrower credit, assets and type of property being financed
• Loan to value ratios (percentage of the property price being borrowed) above agency limits for the property, occupancy or borrower characteristics involved In this way, 

The big problem with Alt-A mortgages are the lack of proof and confirmation of the claims made on a mortgage application.

These are not poor quality borrowers (like sub-prime). Good borrowers, just not the best. Think "B" student in school.

Now, many of these Alt-A loans, are starting to feel the pressures of a slowing econonmy.

Also, many Alt-A loans are are Adjustable Rate mortgages, are adjusting to higher interest rates.

Homeowners are starting to have trouble either making the payment. Or, are just deciding not to make the payment at all on a depreciated asset.

Wall Street was taken back. However, that was just for the moment. They will be on to something else shortly, if not already.

Maybe I am eternally optimistic.

However, I think that this news is not a surprise to the powers that be.

Last wee, the housing rescue bill gave the Treasury Department gained unlimited power through 2009 to lend money to Freddie and Fannie and/or buy their stock if needed.

The problems existed then as they do today. Fannie Mae, Feddie Mac nd our Government acted with this new "Alt-A' Crisis in mind.

Alt-A will not become the Sub-prime of 2008.

 

____________________________________________________

Copyright © James Wexler, *what happens to your money when a bank fails?*

Contact :Wexzilla : for all your Phoenix | Scottsdale area Real Estate needs