Resetting of Alt A loans in the coming 24 months
I have been talking about the problems brewing in the Alt A and more specifically about Option ARM loan markets. Alt A loans reside between prime and sub-prime loans in terms of credit risk from a lender’s perspective and are characterized by the lack of documentation or proof of assets; they were often called Liar’s loans. A good explanation of Alt A can be found in this article.
CAR’s data regarding activities in Sub-Prime and Alt-A loans for 2009 revealed some disturbing trends in the coming months.
Look at the numbers of Alt-A loans out in the market: 632,215 or 5% of all loans in California. And of those, 70% are ARMs or adjustable rate mortgages – meaning their teaser rates will reset some time in the future. The bulk of the Sub prime mess has already reset and in the coming future only a small number is scheduled to reset in the next 24 months (15.6%). But look at Alt-A by comparison. Only 46.9% have already reset and look at the bomb that is ready to reset within the next 24 months as of May 2009! 40.4%! Unfortunately, there were no dollar figures associated with this graph. And buried in that number is the truly toxic Option ARM which is almost a guaranteed foreclosure simply waiting to happen. If people think the sub-prime mess is over, they are probably correct. But look at the beast that is coming down the road; we may only be half done.
