Alt-A: Newest Florida Mortgage Problem Area?

Bad credit Florida home loans have been generating a lot of attention and worry of late among investors, housing officials, economists and regulators.

That’s nothing new nowadays. But those loans could be only part of the threat posed to the housing market by risky Florida mortgage lending.

Some experts are growing concerned about the so-called Alt-A mortgage loan market, which has grown even faster than the market for bad credit Florida mortgage loans to borrowers with less than top credit.

Alt-A refers to people with better credit scores (A-credit) who borrow with little or no verification of income - so-called alternative documentation.

But some people in the industry call them “stated income” loans, or worse, “liar loans.” And these no-doc loans were an important part of the record real estate boom of 2001-2005 that has recently shown signs of a bust.

Standard & Poor’s estimates that nationally, the Alt-A market has gone from less than $20 billion in volume in the fourth quarter of 2003 to more than $100 billion in each of the last three quarters.

But just as the Alt-A market share has grown faster than the bad credit Florida home loan market, some believe it could shrink even faster amid some of the concerns in the marketplace right now.

That means another pool of money that has supported home sales and housing prices being yanked just as the Florida housing market is already in decline.

Alt-A home loans were very popular among home buyers who were in the market for a real estate investment property, instead of a home that they intended to live in as their primary residence.

And while the default and foreclosure rates for Alt-A are only a fraction of the rates for subprime lending, the widespread use of the home loans by investors is a concern, given the glut of inventory now sitting on the market without buyers.

Still, experts say that while Florida mortgage default rates are likely to rise for many Alt-A loans, they won’t reach the levels seen of late in the subprime sector.

Only 1.5 percent of Alt-A loans are now 60 days delinquent or more, while in subprime / bad credit Florida mortgages it is 7.5 percent.

Barring a major recession, officials don’t think Alt-A mortgage problems will reach the same kind of deliquency or home loan default rates causing widespread panic across the subprime lending sector.

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