Tuesday, December 04, 2007

No One Could Have Predicted

That so-called "liar loans" wouldn't perform very well.

DANA POINT, Calif., Dec 4 (Reuters) - Expected losses for troubled mortgages known as Alt-A loans are now more than double earlier forecasts and losses for subprime bonds originated in 2006 may climb to 20 percent or more, analysts said on Tuesday.

Moody's Investors Service on Tuesday raised its forecast for expected losses for U.S. mortgages known as "Alt-A" residential mortgage debt. Loss estimates for Alt-A bonds reviewed by Moody's increased by an average of 110 percent from initial expectations, with some loss estimates up by as much as 270 percent, Moody's said in a report.

Alt-A mortgages are made to borrowers with credit scores above subprime but who have other risky attributes, such as no proof of income or lack of an equity stake in the property.

The "liar loan" term may be a bit harsh. People who get these kinds of things are often self-employed and aren't necessarily deliberately distorting their annual incomes. But without any serious underwriting there just isn't any way to determine if these people have a genuine ability to pay.

If I felt the need to coin a more family friendly term than "Big Shitpile" to describe what's going on, I might call it "Jenga."