Alt-A Loan problem still to come

The mess of sub-prime mortgage is almost over but there is another problem that financial companies need to worry about i.e. Alt-A loan. Alt-A (Alternate Document) loan is the loan given to the people who has good credit but does not want to show the document related to asset and income such as W2/1040/Bank Statement and so forth. Going forward, you will hear the news of Alt-A loan problem. About 3 million U.S. borrowers have Alt-A mortgages totaling $1 trillion, compared with $855 billion of subprime loans outstanding. 70% of them has exaggerated their income by 50% or more. $400 billion of that was sold in 2006. Almost 16% of Alt-A loans issued since January 2006 are at least 60 days late. Many of these loans (around $270 billion) were interest-only, and the resets were at 3- and 5-year lengths. That means starting next year we are going to see a wave of mortgages resetting to new rates hence it will increase the foreclosure rate.

Fannie own 340B, Freddie own 190B, Wachovia own 122B and Washington Mutual own 53B of Alt-A loan. If you look at their stock its already built into it. But if it go worst, this companies has no future. And due to this, housing is not near bottom, according to the Schiller. Housing went 20% down and it will down further more 10%. Housing fell 30% in great depression. This is the time nothing less than Great Depression as 164 years old company, Lehman brothers, is struggling to survive. This company survived Civil War, Panic of 1907, World Wars, Great Depression, and many deep recessions. But as of now, they are looking for buyer. You can imagine how bad it is.

There is one more problem apart from this I will cover later.