Aurora Loan

Aurora Loan specialises in interest-only and no-documentation mortgages that are riskier for lenders than prime loans. One step up from subprime, these “Alt-A” loans were a big part of Lehman’s mortgage portfolio and accounted for a large portion of its recent losses.Subprime mortgages – high- interest home loans made to poor credit borrowers – were the first to tumble during the credit crisis that began more than a year ago. But Alt-A loans weren’t far behind.The loans were created to provide credit to home buyers with solid assets but unreliable incomes. Over time, however, Alt- A loans were increasingly made to less creditworthy borrowers on generous terms, and default rates rose.The value of Lehman’s Alt-A mortgage holdings fell 60percent during the last six months to 5.9 billion, the firm reported last week. Lehman also wrote down the value of its subprime loans, but much of the loss was offset by hedge investments.“The majority of our write- downs were in Alt-A, driven by an increase in ... delinquencies and loss expectations,” Lehman chief financial officer Ian Lowitt told analysts last week. Aurora Loan is the nation’s largest servicer of Alt-A loans and was once the top originator of the mortgages. In January, Lehman shut down most of Aurora Loan’s origination business and closed offices in California, Florida and New Jersey. The company fired 1300 people, more than half its employees. Its fate is uncertain.National Mortgage News reported on Monday that Lehman could sell the company, which is based in Douglas County south of Denver. Lehman invested in what is now Aurora Loan in 1997, moving the small mortgage company from Scottsbluff, Nebraska, to Aurora then later to Douglas County. The investment bank was among the first of its peers to originate home loans and securitise them for sale across the globe. It fuelled the growth of the Alt-A loans.Aurora Loan faltered by lowering credit standards and eliminating its down-payment requirement, a dangerous combination for loans that require no documentation of income, said Boulder mortgage banker Lou Barnes.Alt-A loans are nearly impossible to secure now, which is a loss for many legitimate borrowers who don’t qualify for standard loans, Barnes said. “These are loans we desperately need to make but we can’t,” he said.