Alt-A Loans Eliminated
Also in the CNNMoney article about the changes being implemented by Fannie and Freddie to curtail the mortgage market, is the mention of the elimination of Alt-A loans by the end of 2008. (My sense is if they have decided to eliminate by the end of 2008, it’s probably difficult to get these kinds of loans approved today).
CNN Money reports that Alt-A loans accounted for about 11% of Fannie’s loans. Alt-A is a category for no-doc/low-doc mortgages. The street name for this is “liar loans.” However, this was also that way for many independent business owners were able to get mortgages. For example, you might have a business owner who makes more than $200,000 but because of his/her write offs, they may only show an income of $80,000. The reality is he/she can afford a home much greater than what his/her $80,000 income could qualify for. These kinds of buyers were perfect for Alt-A loans. Not any more.
Did the market just lose 11% of the buyers yet again? Probably not, but a certain percentage of these people certainly will go away. Based upon this move, we probably have just lost another 5-8% of home buyers out there. While that might not sound like a lot, in the U.S. we are on pace to sell approximately 5,000,000 homes this year down from 7 million homes sold in 2005 during the peak. (See Calculated Risk for some excellent analysis and charts). At a pace of 5,000,000, if we lose 5% that’s another 250,000 buyers gone. If it’s 8%, that’s another 400,000.
