Thursday, March 1, 2007

WSJ Mortgage Bombshell - Not Really if You've Been Reading Here

In recent weeks, this blog has been talking about mortgage troubles spilling over beyond subprime. The Wall Street Journal has picked up on the story...

Mortgage Defaults Start to Spread

New Data Show That Nontraditional Loans Are Beginning
To Haunt Borrowers With Midlevel Credit; Prime Still Fine

By RUTH SIMON and JAMES R. HAGERTY
March 1, 2007; Page D1

The mortgage market has been roiled by a sharp increase in bad loans made to borrowers with weak credit. Now there are signs that the pain is spreading upward.

At issue are mortgages made to people who fall in the gray area between "prime" (borrowers considered the best credit risks) and "subprime" (borrowers considered the greatest credit risks). A record $400 billion of these midlevel loans -- which are known in the industry as "Alt-A" mortgages -- were originated last year, up from $85 billion in 2003, according to Inside Mortgage Finance, a trade publication. Alt-A loans accounted for roughly 16% of mortgage originations last year and subprime loans an additional 24%.

The catch-all Alt-A category includes many of the innovative products that helped fuel the housing boom, such as mortgages that carry little, if any, documentation of income or assets, and so-called option adjustable-rate mortgages, which give borrowers multiple payment choices but can lead to a rising loan balance. Loans taken by investors buying homes they don't plan to occupy themselves can also fall into the Alt-A category. Read on by clicking here.

3 comments:

Tom said...

FYI
From a personal standpoint, we buy certain properties fix them up to sell or rent.

The mortgage markets haven't had much effect on us yet.
Of course, we do most of our investing in the south which seems to be more resilient than other parts of the country.
We are more selective in purchasing and less sanguine about the selling price.
T

Jim K said...

Tom, interesting. If your FICO score is well above 650, you are probably loved and coveted right now.

65Trader said...

Tom,
One guy I know who has been flipping for decades told me it is very difficult to find deals.

My area has been flooded with amateur house flippers. I know an amateur flipper who has found a bank who will lend him about 120% of what he buys it for. He's living off the loan money while his houses sit. When rates go up and lending gets tighter, he is going to be in a tough spot.

What has your experience been with the amateur flippers and finding deals?