Alt-A Mortgage Crisis About to Hit the U.S.

Most Americans are not familiar with the term “Alt-A”, but they will be soon. Alt-A stands for “Alternative A” and it is a category of mortgage which is between subprime and prime.

The current mortgage crisis in the U.S. is the result of a firestorm of subprime mortgage failures. The next mortgage crisis to hit the U.S. will be the result of a similar firestorm of Alt-A mortgage failures.

Henry Blodget recently published some extremely clear visuals in Coming Soon: The Alt-A Mortgage Reset Bomb.

These graphics show how $2.4 Trillion worth of Alt-A mortgages are going to reset in the next few years, many of which are going to go into default.

Sixteen percent of Alt-A mortgage holders are already 60days or more late on their mortgage payments. A large percentage of those mortgages are clearly headed into default.

Resets, however, are a much larger issue. Many of these loans were created with low introductory interest rates which are scheduled to reset after three or five years. When those loans reset in 2010-2013, huge numbers of homeowners will go into default because they can no longer afford their existing mortgages.

The value of Alt-A mortgages exceeds the value of subprime mortgages. This means that the next mortgage crash is likely to be more severe than the last one.

My advice is always the same. Pay down your debts. Live within your means. Peace of mind is the greatest luxury you can own.