Alt-A – The New Fear For Banks In USA
March 6th, 2009
After “subprime” comes “Alt-A.” There are fears the global banking system will be hit by a second wave of huge losses, caused by defaults in the US on what are known as Alternative-A mortgages.
Ranking between prime and subprime, Alt-A loans were taken out by middle class Americans. As the recession deepens and more white-collar workers lose their jobs, the number of repossessions in more well-heeled areas has soared. Credit rating agency Moody’s has set alarm bells ringing by downgrading the value of Alt-A debt because it has seen an “unprecedented” number of borrowers falling behind with repayments.
Up to $US600bn of Alt-A debt is outstanding and $US150bn may need to be written off. British banks have already written down some of the losses. As an indication of the global spread of the problem, British banks Lloyds, Barclays and Royal Bank of Scotland have total Alt-A exposure of at least £12.5bn, while European bank ING has a £24bn portfolio of Alt-A loans. UBS held as much as $26.6bn, but has offloaded much of the paper at a discount.
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