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Tuesday, January 30, 2018

What is Alt-A, does it still exist?

U.S. mortgage

Alt-A: If you ask 5 different mortgage persons what they are, you are likely to get 5 different answers. However, most will probably be pretty close, just a bit different perspective.

"A classification of mortgages where the risk profile falls between prime and subprime. The borrowers behind these mortgages will typically have clean credit histories, but the mortgage itself will generally have some issues that increase its risk profile. These issues include higher loan-to-value and debt-to-income ratios or inadequate documentation of the borrower's income."

"Alt-A mortgage, short for Alternative A-paper, is a type of U.S. mortgage that, for various reasons, is considered riskier than A-paper, or "prime", and less risky than "subprime," the riskiest category."

As real estate professionals or consumers using the services of a real estate professional, you will be exposed to an onslaught of acronyms. The Alt-A -- or Alternative A-Paper (also known as prime and conforming) mortgage type is not lacking. Falling in the middle of the three general categories (oh, don't forget the government categories FHA and VA :), these are famous for their acronyms which bleed over to the Prime and sub-prime arena as well:

1. SIVA -- Stated Income, Verified Assets -- also known as "Stated"
Your income is stated, your job (not income) is verified and so are your assets

2. SISA -- Stated Income, Stated Assets
Both your income and assets are stated, but not verified, job is verified

3. NIVA -- No Income, Verified Assets
No job verification but assets are verified

4. NINA -- No Income, No Assets
Neither your job nor your assets are verified (can't understand why this caused a problem in the mortgage market :)

5. No Ratio -- No Ratio
Your Debt-To-Income Ratio is not taken into consideration

6. No Doc-- No Documentation (clever with that one)
They don't care anything about, job or assets, just credit score

All of the above are credit score driven and were as Investopedia said these mortgages were typically given to clients with clean credit histories.

Many, many lenders have temporarily or permanently shut down these type of loan programs and others were put out of business b/c of their use. We still have a few brave lenders out there willing to fund these loans. Since the secondary market (where lenders and bank sell these loans and replenish their funds) lost their appetite for these, the rates have begun to climb dramatically. Only time will tell whether these loans will come back. I believe they will, but we are not likely to see the near Prime rates that we once had.

The virtues, or lack thereof, of these programs, can be discussed 'til the cows come home. Feel free to comment, but I hope this provides a little introduction as to what these products were/are.

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