Alt-A
Quick quiz: Which of the following best describes Alt-A?
A) A short-lived accordion-based side project fronted by Eddie Vedder that produced one album in the late 1990s
B) A fringe group dedicated to re-ordering the alphabet
C) A now-defunct keyboard command that would automatically initiate an arbitration claim against Microsoft
D) Something to do with mortgage borrowers' credit quality.
Sadly, the answer is (D), though Eddie Vedder did have his ukulele phase...
Mortgage lenders sort borrowers into two main categories: prime and sub-prime. As you might guess from the way the names are constructed, prime borrowers are higher quality and sub-prime are lower quality.
Alt-A represents a space in between. The designation represents the middle ground of mortgage risk.
Prime borrowers are highly likely to make their house payment each month. Subprime borrowers are much riskier. Alt-A borrowers usually have most signs going for them that they will be able to keep up their payments, but with some red flags. Maybe the house they are buying is slightly more expensive than their income justifies. Maybe their documentation is incomplete for some reason.
The Alt-A borrowers will likely have to pay higher interest rates than a prime borrower would to make up for the lower credit quality. Also, they might not get approved by all lenders.
Related or Semi-related Video
Finance: What is the Relative Strength I...2 Views
finance a la shmoop what is the relative strength index as is the satisfaction
gained from a Saturday night date well everything is relative [man and woman kissing in car]
yeah all right when the same is true in stock market and generally speaking when
viewing any given stock its performance is mapped against the overall market and
for most Wall Streeters the overall market is defined as probably the S&P
500 more or less maybe the Dow may be Nasdaq but that's P 500 kind of what [man discussing S&P 500]
everyone uses so if the market or the S&P 500 was up 20% in a given period and
your stock was up only 10% well then sadly for you even though 10% in a short
period of time is a nice gain it was relatively meh [man gives thumbs up]
yeah its relative strength was meh not so great that's what man means by the
same token if the market was down 20% in that same period and your stock was down
only a 5% well then what squared for you your stock was relatively strong so [stock stamped relatively strong]
what's a good RSI or relative strength index and what's a bad one well every
stock is placed on a scale of 1 zero to a hundred and this scale measures a [RSI scale appears]
stock's recent trading strength if it goes over the 70ish mark well that means
it's moving up rapidly and it's probably overbought so it might make you nervous
if you pay attention to charts and crystal balls when you pick your stocks [girl biting her nails]
well if the thing drops below 30 ish in the same way well then it's likely
oversold maybe you should buy some yeah go go buy some Sears or a big-box [man talking outside Sears]
retailer yeah how about that yeah so there's a reason these things
exist only in a vacuum and and don't help real stock pickers necessarily dot
out their portfolio well in either case overbought or oversold the most likely
scenario is that there's gonna be a return to the mean or a regression to
the mean in the immediate future least if you believe the RSI Index thing you
hear working and yeah you want to know that a stock you own is reliably [stock working out in a gym]
steadily strong and maybe not all over the place in extreme hills and valleys
are great on a ski vacation investing in the stock market well not so much but if [man skis off a slope]
you're gonna do that well get used to the hills they don't go
way
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