Thursday, December 18, 2008

What Are Alt-A Loans?

Some interesting factoids about Alternative A-Paper loans:

For lenders, Alt-A mortgages are considered riskier than "prime" loans, yet safer than "subprime"

They are defined by the following characteristics:

- Reduced borrower documentation (NINJA- No Income, No Job or Asset loans)
- High debt to income ratio
- High loan to value ratio

Most Alt-A mortgages are "non-comforming" and do not fall under Government Sponsored Enterprise (Frannie/Freddie) lending guidelines

Typically the borrowers are not credit risks, but the loan structure itself enhances the risk profile

The low amount of documentation allows for borrowers to take on more than they can afford

Alt-A loans are widely used for investment properties, raising the chances that they will go to foreclosure

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