Magazine article American Banker

'Alternative A Loans' Attracting Investors

Magazine article American Banker

'Alternative A Loans' Attracting Investors

Article excerpt

What's catching Wall Street's eye these days? Home loans to small business owners and others who have good credit but lack conventional documentation-like pay stubs-to prove it.

These so-called "alternative A loans" are increasingly being packaged into securities and sold to ready investors, said Linda Lowell, research vice president at Credit Suisse First Boston in New York.

"These loans are an important, growing part of the nonagency mortgage backed securities market," Ms. Lowell said. "This is a way for lenders to build volume in a good niche."

Investor acceptance of alternative A's could bode well for the mortgage industry, which has been testing new products to counter narrow margins on conventional loans.

Right now, alternative A loans account for less than $20 billion of the industry's more than $700 billion of annual originations.

But Ms. Lowell and others see plenty of opportunity for growth. Norwest Mortgage Inc., for instance, is making alternative A loans part of a program to build business through its in-house conduit, said Jim Svinth, senior vice president at the Des Moines l ender.

Alternative A loans are so named because they closely resemble A-quality loans made to borrowers who meet criteria set by Fannie Mae and Freddie Mac.

The alternative products serve borrowers who have good credit but because of special circumstances don't satisfy standard underwriting requirements. For instance, some of these borrowers aren't salaried or have most of their assets tied up in a business. …

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