Lenders Need To Add Atl-A Programs So That Everyone Can Participate in Housing Recovery
Over the past 8 years, the lending pendulum has swung towards extremely conservative underwriting. The benefits of low interest rates have primarily accrued to those with the highest credit scores and people with secure jobs and enough cash in the banks to meet the full documentation requirements on loans that are then sold to Fannie and Freddie. With all the fines and penalties paid by both small and big banks after the hangover of the last mortgage boom, almost all the major lenders have become risk averse and have left the same people who suffered the most in the last boom and bust on the sidelines, as those with pristine credits have continued to take advantage of ever lower interest rates.
It is time to provide credit to those on the second rung of the credit ladder. Between the A paper and sub-prime resides Alt-A lending. A lot of borrowers used Alt-A from banks like Greenpoint in 1990s, when they did not have either sufficient income, assets or credit history to qualify. This program is perfect for those who don’t have two years’ full incomes, or sufficient cash reserves or W-2 salaried jobs, or in other words those other than mostly well off with stable incomes and credits. Alt-A serves people with at least a minimum fico of 680, who may be lacking one or the other requirements of prime lending. Alt-A can be a common sense alternative if used wisely, i.e., verify self employment income, limit loan to values to no more than 75 percent, use one year’s income if possibility of continued employment is high and limit to owner occupied properties. There are a few banks out there offering this at sub-prime rates. However, It is time the pendulum starts swinging back towards the middle and banks need to start offering this product and the secondary market needs to open up. It will be good for the middle tier borrowers, the housing market and the overall economy.