DEFINITION of 'Alt-A'
A classification of mortgages where the risk profile falls between prime and subprime. The borrowers behind these mortgages will typically have clean credit histories, but the mortgage itself will generally have some issues that increase its risk profile. These issues include higher loan-to-value and debt-to-income ratios or inadequate documentation of the borrower's income.
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BREAKING DOWN 'Alt-A'
These types of loans are attractive to lenders because the rates are higher than rates on prime classified mortgages, but they are still backed by borrowers with stronger credit ratings than subprime borrowers. However, with the higher rates comes additional risk for lenders because there is a lack of documentation - including limited proof of the borrower's income.
RELATED TERMS
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Subprime Loan
A type of loan that is offered at a rate above prime to individuals ... -
Subprime
A classification of borrowers with a tarnished or limited credit ... -
No Income / No Asset Mortgage - ...
A type of reduced documentation mortgage program in which no ... -
Credit Risk
The risk of loss of principal or loss of a financial reward stemming ... -
Default Risk
The event in which companies or individuals will be unable to ... -
Loan-To-Value Ratio - LTV Ratio
A lending risk assessment ratio that financial institutions and ...
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