Alt-A

An Alt-A mortgage, short for Alternative A-paper, is a type of U.S. mortgage that, for various reasons, is considered riskier than A-paper, or “prime”, and less risky than “subprime,” the riskiest category.

Alt-A interest rates, which are determined by credit risk, therefore tend to be between those of prime and subprime home loans.

Within the U.S. mortgage industry, different mortgage products are generally defined by how they differ from the types of “conforming” or “agency” mortgages, ones guaranteed by the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.

There are numerous factors that might cause a mortgage not to qualify under the GSEs’ traditional lending guidelines even though the borrower’s creditworthiness is generally strong. A few of the more important factors are:

• Reduced borrower income and asset documentation (for example, “stated income”, “stated assets”, “no income verification”)
• Borrower debt-to-income ratios above what Fannie or Freddie will allow for the borrower credit, assets and type of property being financed
• Credit history with too many problems to qualify for an “agency” loan, but not so many as to require a subprime loan (for example, low FICO score or serious delinquencies, but no recent charge-offs or bankruptcy)
• Loan to value ratios (percentage of the property price being borrowed) above agency limits for the property, occupancy or borrower characteristics involved

Alt-A loans are “alternatives” to the standard of conforming, GSE-backed mortgages.

Source: Alt-A – Wikipedia, the free encyclopedia