eFinancialCareers

What is it?

Alt A is the name given to mortgages that aren’t quite as risky as sub-prime (ie, those made to the NINJA type borrowers with no income, no job and no assets), but nor are they quite as safe as the prime mortgages made to individuals who’ve stayed in the same job for the past 20 years and have a loan to value ratio (ie, mortgage to house value ratio) of less than 50%.

Most Alt A mortgages will involve an incomplete credit history, or a lack of documentation to certify an income. In the UK, loans of the latter variety are known as ‘self-cert’ mortgages.

What’s it got to do with the financial crisis?

Sub-prime mortgages sparked the credit crisis as the borrowers who’d taken out the mortgages turned out to be unable to pay them back. As the economic climate turns, there are signs that some Alt A mortgage holders will default too, leading to further banking writedowns as the loans banks made to Alt A mortgage holders become worth less than they’d originally thought. More writedowns mean a reduction in the value of banks’ assets and a reduction in their ability to make new loans.

Last updated on 26 September 2008.

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