Deterioration of the Alt-A mortgage market.

Over the last several months we seen the collapse of the subprime market which funded loans to those who were credit challenged. More than 2 dozen companies shut their doors while others scrambled to change guidelines which reflected the direction of the upcoming market.

In addition to these changes we’ve seen several states putting in their own legislature to stop reduced doc loans like stated, no ratio, and no doc.

Now the biggest impact has started Thursday, 8/1/2007 that will affect the Alt-A (portfolio) products.

Just a quick breakdown of what Alt-A is.
Lenders sell of their loans in bulk on the secondary market. Normal conforming loans are usually sold of to Fannie/Freddie. The Alt-A loans are purchased by investors on Wall Street because at one time they perceived the risk was worth the yield return.

Alt-A loans were generally made to those with good credit but in need of reduced documentation, high ltv, unlimited properties, or other factors that fell outside of the conforming nature. THIS INCLUDES THE FOREIGN NATIONAL PRODUCTS.

With the current and expected increase in default, the Wall Street investors are no longer interested in purchasing these types of loans from lenders. In fact, some of the investors are now making margin calls to these lenders which could be disastrous.

This week we’ve already had 1 major lender shut their doors and it can be assumed there will be a domino affect.

As of yesterday and early today, almost every lender that once offered an Alt-A loan has either changed the product guidelines completely, pulled their products altogether, or have priced their product incredibly high.

What this means to you as a borrower.

Uncertainty for the next few days to weeks. You should absolutely call your mortgage professional if you are in the middle of a transaction, especially if preapproved. Those prepprovals are potentially invalid now. All loans need to be locked ASAP so they can be grandfathered in with the old guidelines.

Because this just happened, many lenders are still reacting and just making changes. I’ve spent the morning speaking with my contacts within the lenders I use and all have told me that changes to their Alt-A market are coming. Some have advised that their products will be completely pulled.

It appears that the majority of lenders are now looking to originate pure conforming loans which they know can be sold off. My thoughts are that the market is correcting itself and we’ll see this continue for a bit. There’ll probably be some remaining lenders offering Alt-A products but it’s tough to say who and what will be offered.

Check out

My company completley removed Alt-A from our rate sheet. EVERY scenario has to be run through pricing before it can be locked. Aurora had TWO guideline changes yesterday. For some pricing and UW departments that are correspondent it is too much to try and keep up with.

Not to split hairs, but 109 lenders have gone belly up since 4Q2006/1Q2007 and 13 are listed in critical condition according to the Lender Implode-A-Meter…

Three lenders went RIP this week—AHM, ABC and most recently, Fieldstone (not to mention Flexpoint [a hard money lender] exiting the wholesale business)…First Magnus announced that they have eliminated the majority of its investor programs which means Aurora has implemented a new recipe (as they are the servicing bank for loans from FM and others).

This will have a lasting effect on investors and the lenders that service them for the remainder of the year if not longer—MY PREDICTION:
We are reverting back to the guidelines of the late 1990’s—90 LTV, FULL DOC, A paper credit or else…


Scott Miller

What were the changes Aurora made, I haven’t looked yet.

Just got off the phone with the Aurora rep and they’re still offering the 100% option for investments.

I guess I’m forced to use them. In the past I had the option of using a combo of 1 lender’s first and another lender’s 2nd which took me up to 100% cltv. Neither had that darn property ownership restriction.

It’s coming, you’ll see (why would FM pull back when they are selling them off to Aurora anyway)…


Scott Miller

I dont doubt they’ll be a change with them coming, but for now my lock should should get me through to closing.

We are reverting back to the guidelines of the late 1990's---90 LTV, FULL DOC, A paper credit or else...

Based on my observations I would agree.

I do think that there will be a true “sub prime market”, a variation of today’s hard money lenders, left and the rates and guidelines will be outrageous.

Is this mostly concerning 4 units and under loans which are considered residential? It doesn’t sound like you all are talking about true commercial loans.


Yes, we are speaking of residential financing (1-4 units), although commercial lenders that are selling into the secondary market are padding pricing to entice investors…


Scott Miller

I’ve got a loan coming through Aurora right now, should close in a week or so…Seems that they’re the only ones my broker could find for a stated income 80% cash refi on a sfr just remodeled…

If you were not in title to that home for at least 12 months be prepared that Aurora more than likely will not fund past 75% using the new value.

In addition, I believe Aurora has discontinued their 100% NOO program. Last guidelines published online still show this but their automated online system wont accept over 90% now.

Told you it was coming—it pays to know folks upstream…


Scott Miller

Not one lender out there is going to be left untouched with the way the market is turning. It doesn’t take much to see that.

This is a great article about someone who really seen this coming and acted upon it. To bad he was upstream for all of us to follow.


Just curious if Carteret ever opened up the channels for it’s brokers to use Aurora? I know several years black they had been black listed.


That’s not what you were saying earlier this month…

I don’t own Carteret Mortgage, so I suggest you contact corporate and ask them why they didn’t want to sign a buyback clause (Aurora has an issue with all the big boys, not just the company I work for).

BTW, how long do you think your netbranch/charter bank has before it is regulated out of the business?


Scott Miller

I am still splitting hairs to get 4 loans closed. My broker going nuts as the programs change so much. Purchase 130K, 20% down, appraised $160K. Trying to close 3 condo units, all same contract. NO luck for 2 1/2months. Must go stated or NO DOC with a 694 FICO. Any recommendations???

Sorry, Aurora is still doing 100% with a 720 full doc. Forgot to check off the “To Be Escrowed” box which through the pricing engine out of scope.

Anyway, todays rates range from the mid 14s to the high 15s…All paying the lender a range from 1.5 to 2.5 points just to even be able to get to that rate. Selecting a rate even lower would mean higher discount points.

Sorry for the confusion.

Ben Carmona

My quote from earlier in the month so you dont confuse my words again.

As far as the charter, it’s great right now. If you have any loans in states you cant get done, feel free to send this way. Since your so far upstream you can let me know when something’s gonna happen. I may then be forced to join Carteret.

Greenpoint Mortgage has joined the long list of lenders by closing down their residential operation effective immediately.

Anyone that thought this would be contained to subprime, needs to think otherwise…


Scott Miller

Like a house of cards!

A house of cards with a hand grenade in the middle.