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I’ve authored repeated rants to the effect that burgeoning troubles in the mortgage market were caused by high risk loans, regardless of whether those loans were “subprime.” This distinction recently became clear to the mortgage lending company called American Home Lenders, or AHL for short. AHL wrote very few subprime mortgages, but rather dealt primarily in “Alt-A” mortgages — loans that are risky by virtue of their features, but made to borrowers with good credit. The company announced on Friday that it would file for bankruptcy.

We also learned last week that a couple of big lenders have moved to cut back on funding Alt-A loans, and that rates are rising for the loans that do get funded. Bloomberg has a good summary for those who want more details.

Mortgage companies abruptly going belly up… other lenders severely tightening the purse strings… doesn’t all this sound familiar? It does to me: broadly speaking, it looks like what happened in the subprime lending market near the beginning of 2007 may be happening all over again in the Alt-A market. In other words, the lending crunch has now arrived for borrowers with high credit scores.

Up to this point, the upscale San Diego housing sub-markets that such creditworthy borrowers typically targeted were holding up fairly well, leading many a pundit to declare them invulnerable. But that was another time, as far as the fast-moving mortgage world goes. In the months ahead we will see how strong the high-end markets really are without the fancy financing they enjoyed up until last week.

— RICH TOSCANO

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