The next wave of foreclosures is going to be with Alt-A mortgages. Alt-A mortgages are starting to reset now. Many of these home owners are finding that they can’t afford their new re-set payment. When they try to refinance the loan they are being told “no” by their lender because their home has depreciated and wont appraise. Clearly there will be a dramatic rise in the home sellers who must sell and will need to list with agents who are short sale certified. Learn the exact skills and secrets to become short sale certified now and be the agent with all the great priced short sale listings. Download the free 7 part Agent Short Sale Secrets crash course now.
Homeowners lured by low introductory rates to Alt-A mortgages, which typically require little or no proof of a borrower’s income, may fuel the next wave of foreclosures and further delay a recovery from the worst housing decline since the 1930s. Almost 16 percent of securitized Alt-A loans issued since January 2006 are at least 60 days late. Defaults will accelerate next year and continue through 2011 as these loans hit their three- and five-year reset periods, according to RealtyTrac Inc., an Irvine, California-based foreclosure data provider.
About 3 million U.S. borrowers have Alt-A mortgages totaling $1 trillion, compared with $855 billion of subprime loans outstanding, according to Inside Mortgage Finance, a trade publication in Bethesda, Maryland. Agents, read that again…there are more Alt-A mortgage than there were Sub-Prime! Of the Alt-A borrowers, 70 percent may have exaggerated their income, said David Olson, president of mortgage research firm Wholesale Access in Columbia, Maryland.
While subprime home loans describe a type of borrower –those with bad or limited credit histories — Alt-A, or Alternative A- paper, are shorthand for a type of loan developed in the mid- 1980s.
`No Doc’ Push
Many Alt-A loans go to borrowers with credit scores higher than subprime and lower than prime, and carried lower interest rates than subprime mortgages.
Alt-A loans were used to expand home ownership among first- time buyers as prices climbed out of reach for many of them, according to Rick Sharga, executive vice president for marketing at RealtyTrac.
“To grow, the market had to embrace more borrowers, and the obvious way to do that was to move down the credit scale,” said Guy Cecala, publisher of Inside Mortgage Finance. “Once the door was opened, it was abused.”
Some mortgage brokers and loan officers urged borrowers to inflate incomes, exaggerate job titles or increase loan size because lenders could profit by selling riskier Alt-A loans to investors, said Jim Croft, founder of Reston, Virginia-based Mortgage Asset Research Institute.
“When homes prices were going up, people were saying, `If I don’t buy now, I’ll never be able to buy,”’ Croft said.
The Alt-A market grew more than seven-fold to $400 billion in 2006 from $55 billion in 2001, according to Inside Mortgage Finance.
Since home prices peaked in July 2006, they have fallen 18.8 percent nationally, leaving an estimated 29 percent of borrowers who bought in the last five years with houses worth less than what they owe on their mortgages, according to Zillow.com, an Internet real estate valuation site.
Seriously Delinquent
The “serious delinquency” rate for Alt-A mortgages issued in 2007 hit 10 percent in half the time it took for those from 2006 to reach the same level, Moody’s Investors Service said in a report last month.
“Alt-A loans have turned toxic,” Cecala said. The combination of exaggerated income, falling home prices and payments that reset higher is “a recipe for disaster,” he said.
The loans accounted for 8.9 percent of the almost $3 trillion in U.S. home loans made in 2006, according to an estimate by Inside Mortgage Finance.
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Some content from Bloomberg
