From Bloomberg:

Homeowners lured by low introductory rates to Alt-A mortgages, which typically require little or no proof of a borrower’s income, may fuel the next wave of foreclosures and further delay a recovery from the worst housing decline since the 1930s. Almost 16 percent of securitized Alt-A loans issued since January 2006 are at least 60 days late, data compiled by Bloomberg show. Defaults will accelerate next year and continue through 2011 as these loans hit their three- and five-year reset periods, according to RealtyTrac Inc., an Irvine, California-based foreclosure data provider.

“Alt-A will be another headache,” said T.J. Lim, the London-based global co-head of markets at Unicredit Group. “I would be very worried about anything issued in the last half of 2006 and the first half of 2007.”

About 3 million U.S. borrowers have Alt-A mortgages totaling $1 trillion, compared with $855 billion of subprime loans outstanding, according to Inside Mortgage Finance, a trade publication in Bethesda, Maryland. Of the Alt-A borrowers, 70 percent may have exaggerated their income, said David Olson, president of mortgage research firm Wholesale Access in Columbia, Maryland.

Unfortunately, what started out as a subprime-only problem has spread into Alt-A and Prime mortgages as well - and when these loans start going bad, it could dwarf the bloodbath we’ve seen so far.

The amounts held in Alt-A and Prime mortgages far exceed the total of subprime loans. But the effects of the collapse in the subprime market: increasing foreclosures, falling home prices, the odd bank failure and nationalization - these have set the stage upon which the resets of the Alt-A and Prime mortgages will be acted.

This is huge news, and speaks ill of what is to come. Unfortunately, with the bailouts of Fannie and Freddie, the implosion of Lehman and Merrill, and who knows what with AIG and WaMu, it’s probably going to get lost in the shuffle.

16, originally uploaded by * andrew.