Alt-A mortgages, the other shoe to drop

Ok, we have all heard of sub prime. But did you know that there are only about $855B of them? The next level up the rung (from the bottom) of easy to get mortgages are Alt-A mortgages. Those are also called “stated income”. Basically no W2 required. Mostly made to small businesses or to people with lots of non wage income, they just said “my income is XXX” and there was little verification. Estimates of overstated income range from 5-50%. And then these small businesses are not doing well in the current environment. In the second quarter default rates of this kind of loans went into double digits. Hummm… More coming.

See where all the bones are in Alt-A mortgages over at Bloomberg.