And now the Alt-A’s:
The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building.
Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults.
The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.
In all the previous housing crisis threads, smart commenters warned that the real shit was going to hit the fan when the Alt-A’s started failing:
While ‘subprime’ was the word of the year for 2007, ‘Alt-A’ will be the word for 2009 or 2010. And it is going to kill us.
Alt-A are the non-conforming loans made to people with good credit ratings, but who paid extra points in order to avoid proving income and assets. Since any monkey with a job and some self-restraint can maintain a decent credit rating, an enormous number of people who could not afford to put any money down were given these loans, with not real underwriting analysis, so they could buy overpriced homes.
The Alt-A problem is an order of magnitude larger than the sub-prime problem. It will not manifest itself until at least another year, so hold on tight and hoard Yen, Loonies, Rubles and Krugerrands. (Euros and Pounds Sterling won’t hedge this risk, because Europe and the UK are in as much trouble as we are, but they just don’t know it yet.)