Alt A mortgages is next much bigger wave of loan defaults and foreclosures
Of course we mentioned Alt -A mortgages long ago and warned that these Alt A mortgage loans presented much larger issue than much maligned subprime mortgages. Obviously, no one talked about those alternative -A loans until now including lenders.
All of sudden, the number of already delinquent or soon-to-be alternative -A mortgages quadrupled to 12% in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, also rose, doubling to 2.7%. We can only suggest that the number of these mortgage loans in default will be rising dramatically. The reasons are the shear number of Alt A loans, the length of their fixed term, very tight lending standards and bad timing. While most of subprime loans were 2/28 or 3/27 adjustable rate mortgages, meant to adjust in 2 and 3 years, and were given to borrowers at already exuberant rates, something like 8 - 9.5%, the Alt -A or alternative mortgage more than often were fixed for 5 or even 7 years with a quite decent initial rate. So vast majority of subprime deals has been already flushed down the drain, while many with alternative loan are still enjoying the low rate. These borrowers can't and won't be able to refinance now, first because the home values went down diminishing equity and increasing Loan to Value way above what lenders today consider safe, and even more importantly, gone are the days when Alt -A mortgage was given to people with decent credit scores without proof of their income or assets. Decent by the way was anything above 620. As we wrote before, the worst example of stupidity was No Income, No Asset, No Employment Verification Alt A mortgage with 620 credit score and 5% down payment from long defunct American Brokers Conduit or ABC. So brace for much worse news, we have it coming. Just consider that data on securities backed by subprime mortgages show that 8.41% of loans from 2005 were delinquent by 90 days or more or in foreclosure in June, up from 8.35% in May, according to a research firm CreditSights, whereas 16.6% of 2007 loans were troubled in June, up from 15.8%.
Tue Aug 5, 2008 09:08PM | Copyright: www.bad-credit-advisor.com | More in Mortgage | Comments (0)
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