If you thought that the subprime loan meltdown was bad, wait for the Liar Loan fallout. These "stated income" loans may end up causing a lot of damage to the overall economy. $400 billion worth of these mortgages are starting to show signs of stress as there were some companies with major exposure to these "Alt-a"(Liar loan) mortgages. Gee, I wonder why the CEO of Countrywide Financial (Angelo Mozillo) was dumping millions of dollars worth of his shares while pumping the stock a few months ago. I smell more investigations around the corner. Enron, eat your heart out!
Alt-A mortgage lenders feeling market's pinch"While you're starting to see some deterioration of the quality, it's not so much that investors should be dumping [mortgage-backed securities]," he said. "But nobody wants to own a security that goes down in value, whether because of public perception or the reality of the market."
Doug Duncan, chief economist for the Mortgage Bankers Association in Washington, D.C., said that Alt-A mortgages made up a small share of the U.S. market, about 6 percent of outstanding loans. Loans to prime customers, who are the most creditworthy, make up 74 percent; those to subprime borrowers are about 11 percent, and government-backed loans total about 9 percent.
Alt-A borrowers traditionally had credit scores as high as prime borrowers, but often provided less documentation of their finances; in recent years, however, some Alt-A borrowers have had credit scores closer to subprime borrowers and still weren't asked for full documentation.
Duncan said he expected to see some increase in delinquencies and defaults in the Alt-A market this year, but said the bigger problem was that investors appeared less willing to invest in these loans because of the deepening subprime problems.
