Alt-A Mortgages Next Risk for Housing Market as Defaults Surge

[marmar]

from Bloomberg:



Alt-A Mortgages Next Risk for Housing Market as Defaults Surge

By Dan Levy and Bob Ivry

Sept. 12 (Bloomberg) -- For Dean Nessen, the choice of a mortgage was easy. By agreeing to pay only interest for three years, the self-employed salesman didn't have to show proof of income and landed a rate of 6.25 percent.

Now, four years later, Nessen's industrial coatings business has gone belly up and his rate has jumped to 10.6 percent. He can't afford the payments and may have to move his family out of their home in Commerce Township, Michigan.

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, data compiled by Bloomberg show. 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.

``Alt-A will be another headache,'' said T.J. Lim, the London-based global co-head of markets at Unicredit Group. ``I would be very worried about anything issued in the last half of 2006 and the first half of 2007.''

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. 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. .......(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601109&sid=arb3xM3SHBVk&refer=home

[SoCalDem]

1. Is anyone surprised??

A friend of our son's had a $15 hr job, a pregnant wife who stayed home with their 2 yr old, and they "bought" a $300K house a while back.. They are now living with the in-laws, credit ruined in their mid twenties..

[sarcasmo]

2. Makes me think of that free credit report dot com commercial.

Kick and Nom, I just hate these stories, see them to much here in Michigan, Greedy lenders.

[Warpy]

3. They need to think of it as an expensive crash course in money

management. A disaster in their 20s will not haunt them forever and they'll be way ahead of people who are continuing to play the game of floating a wealthy lifestyle on a sea of debt.

They know what the scam is and they'll be a little more alert to it in the future.

It's the people in their 40s and 50s who have been playing that game for decades who will end up with nothing and no way to recoup anything in the future.