The Coming Explosion in the Mortgage Market

According to the following post, 50% of Alt-A loans (alternative A rated loans) which consist of adjustable loans and fixed loans to stated income borrowers (basically, borrower tells lender their income) could be ‘fraudulent.’ His major point is that bond insurers could avoid insuring mortgages and send themback to the original lender if the application was fraudulent (liar loan – stated income was inflated, for example).

Link

His points are very well taken. We have discussed them here many times – that this mortgage mess is far from over. It will cause further economic pain, but this could be good pain – to bring standards back to sensible levels.

By the way, I would like to put out this warning again: it is time to consider (get some good professional advice before acting! – thanks for mentioning this Lee) refinancing if you have a variable rate, interest only, or any kind of resetting mortgage.Keep in mind that you may need 700+ credit and 20% equity to get the best current rates. Go to Bankrate.com for the latest nationwide average rates.

Get it done.

editor addition: Here is a great article/video from 60 Minutes on US mortgage market problems HERE.

Chris Grande

4.29.08

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  • Lee

    Chris,

    I love your stuff. I now live in Australia, but can I please give you a ‘caution’ that you should REALLY pass along to your readers……

    “Most (not all, but most) purchase loans are ‘non recourse’ loans, the worst the bank can do is take your house – NOT ANYTHING ELSE!”

    “Refi’s are almost always full recourse loans, they not only get your house but anything else that might be of value EXCEPT YOUR 401K, 403B, etc.

    Please, please, advise your readers to seek “competent and independent legal advice”

    Regards,

    Lee

  • Thanks for the points Lee. When it comes to taking out a mortgage and the responsibility that the borrower has, yes there is recourse to either the house you pledged as collateral or more.

    The article that I linked mentions how bond insurers may avoid responsibility to cover defaults if the mortgages were originally found to be fraudulently underwritten.

    Chris