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