WSJ on the Alt-A sector:

At issue are mortgages made to people who fall in the gray area between “prime” (borrowers considered the best credit risks) and “subprime” (borrowers considered the greatest credit risks). A record $400 billion of these midlevel loans — which are known in the industry as “Alt-A” mortgages — were originated last year, up from $85 billion in 2003, according to Inside Mortgage Finance, a trade publication. Alt-A loans accounted for roughly 16% of mortgage originations last year and subprime loans an additional 24%…

defaults have remained very low in the prime market — and despite the uptick in bad loans, the problems in the Alt-A sector aren’t as severe as those that have roiled the subprime market. Some 2.4% of Alt-A loans are at least 60 days past due, according to UBS, which looked at mortgages that were packaged into securities and sold to investors. That is well below the 10.5% delinquency rate for subprime mortgages.

There’s little doubt that the sub-prime lenders are going to take a bath, Sub-prime loans (about $1 trillion) accounted for 13% of mortage originations in 2006 — double that of a decade before — and about 11% of those are delinquent. But the problem appears to be less than a quarter the size in the Alt-A market. It’s obvious that the sub-prime lenders had a wild New Year’s Eve party last year — and now the party’s over. But the problem hardly looks systemic to the mortgage industry as a whole at this point.

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