Tuesday, September 4, 2007

Motley Fool Predicting Oncoming "Alt-A" Mortgage Crisis

The Motley Fool has a really interesting article running where they are predicting that the Sub-Prime Mortgage melt-down is only a taste of a really monstrously bad situation coming down the pike - the "Alt-A" mortgage implosion.

In addition to these "sub-prime" mortgages, apparently quite a number of banks have been making "Alt-A" loans like drunken sailors over the last few years. These include "stated income" loans which are affectionately known as "Liar Loans" because it turns out that something on the order of 60% of stated income borrowers overstated their incomes by more than 50% when applying for mortgages.

Ah, yes ... these banks and mortgage companies during the low-interest period of the mid-2000's sure figured out new and creative ways to take money from hedge fund investors and lend it to people that didn't have a PRAYER of paying it back.

I used to see those "stated income" loans on the wholesale mortgage sheets and they used to crack me up. Although I suppose technically almost all credit cards are "stated income" - we're usually talking about - what? - $5000 structured to, hypothetically, be paid back over a five-year period or so? A MORTGAGE can be several hundred thousand intended to be paid back over DECADES.

Ten years ago a friend of mine was trying to buy a house and they asked for the original DEGREES of she and her husband and now you can buy a house based on how much you CLAIM to make???

A certain Lou Ranieri, fingered as the founder of the mortgage-backed securities industry is expecting $100 billion in defaults between subprime and Alt-A.


Real nice.

Predictions are that this downslide will affect such places as Home Depot, but P&G might not be that affected because people will still need soap and diapers.

Well, maybe ...

I remember the freak-out fest that followed 9/11. It wasn't pretty.

Unless Bernanke cuts, cuts deep, and cuts soon, we may be in for a repeat ...

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