More Home Loans Are In Trouble
By Kent Anderson, Oregon Bankruptcy Attorney on Dec 15, 2008 in Featured, Mortgage Issues
Sub-prime loans have been in trouble for more than a year. These loans were made to borrowers with poor credit history and marginal financial resources. For quite some time sub-prime home loans have been taking much of the blame for worldwide economic problems. Now another, even larger segment of the home loan industry, the Alt-A group of loans, is beginning to show abnormally high rates of default.
Alt-A loans, as they are called by the industry, are loans to borrowers with good credit who would normally qualify for prime loans but lack sufficient documentation to meet the more exacting underwriting standards of that portfolio. An Alt-A borrower may have income from multiple or varying sources that are difficult to document. In situations where the borrower lacks paycheck stubs or other commonly relied upon documentation, income can be “stated” by the borrower and verified for an Alt-A loan with copies of tax returns or bank statements.
These “stated income” loans are often referred to as NINJA loans (No Income, No Job, No Assets). While not all of the Alt-A loans fall into this category, the refinance frenzy of recent years drove the market toward more of these loans and away from the rigid verification requirements of prime loans.
With Alt-A loans falling like leaves in an autumn breeze, the securities rating agencies are downgrading investment portfolios containing Alt-A loans. Fitch Ratings has substantially increased it loss projections for all U.S. Alt-A residential mortgage backed securities according to an article published at www.housingwire.com, an independent website covering news in the mortgage and financial markets. This means more trouble for our banks and residential lenders.
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