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Alt-A Loan Resets Continuing Through 2011:  Analysts warn that recession woes are pushing a new group of mortgages into foreclosure. 

By now, everyone has heard of sub-prime lending and knows that these home owner's home loans are often upside (the loan value is more than the home's market value).  But, who has heard of 'Alt-A' loans?  'Alt-A' stands for 'Alternative-A' mortgages and if the analysts are correct, you will be hearing much more about them.  Alt A is short for Alternative A-paper, a type of mortgage that is considered riskier than A-paper, or prime, but less risky than subprime, the riskiest category. Alt A loans can be issued at fixed or adjustable rates.  So, there are prime loans, subprime loans, and somewhere in between is the Alt-A loan.

Pay-option loans were originally designed for borrowers with fluctuating incomes — such as the self-employed, construction workers and tourism industry employees — who sometimes could only make minimum payments and then catch up. Wealthy people used them to purchase rental property and repay mortgages with investment profits.

The option of making a minimum payment goes away after an introductory period, often five years, when lenders begin charging the deferred principal and interest. Higher payments can be triggered sooner, when the growing balance typically reaches 110 percent to 120 percent of the original loan amount.  These payment jumps are known as a recast. The biggest surge could hit in 2010 and 2011, or five years after pay option loans soared in popularity.

Now, those borrowers increasingly are discovering the true cost of their loans. When the introductory period ends, monthly payments can jump 50 percent or more on the typical Alt-A loan, far higher than many borrowers can afford.

“They were sold to the consumer as affordable but the payments on the backside are large,” said Hans Bruhner, managing partner of First Priority Financial, a Forestville mortgage company. “It was a recipe for disaster that everyone should have seen coming.”

What does this mean for the DFW Market? The following excerpts from a Dallas Morning News Article provide some insights:

• "The subprime adjustable-rate mortgages have just about worked their way through the market," said Jim Gaines, a research economist at the Real Estate Center at Texas A&M University. "Now there is another wave coming that is bigger than the subprimes."

Sub-prime Stats

• By some estimates, subprime loans once accounted for as much as 20% of the mortgage market in North Texas. They account for almost 50% of the foreclosures.

• Continuing Sub-Prime Woes:  In Texas, about 8% of prime and 26% of subprime adjustable-rate loans are late, first-quarter 2009 estimates show. That works out to about 45,000 potential home foreclosures statewide.

Alt-A Stats

• In the D-FW area, there are more than 40,000 Alt A loans on the books, according to First American CoreLogic Inc. More than 9 percent of those loans are more than 60 days behind in payments.

The implication is that around another 4,000 homes in the DFW area may go into foreclosure, but this time... it is not sub-prime home owners.  It is a new batch and this group includes people those whose rates were set until now and are now for the first time are being impacted by the double whammy of increased rates and lower property values.

This article was written with infomration comming from:

• Steve Brown at the Dallas Morning News
• MICHAEL COIT at the THE PRESS DEMOCRAT
• Anthony V. Migliore