These are more common than subprime loans, and while the terms are better, and the debtors in a better position to pay their loans, this bubble is deflating too.

To quote Rich Toscano, “As a matter of fact, high-risk mortgages have accounted for a comfortable majority of all San Diego home loans in recent years.“

If you have a 10% drop in housing prices, you will see many, if not most, of the homeowners in the US under water, owing more than they can sell the property for.

Alt A Loans `Disconcerting,’ Jumbos Weaker, S&P Says
By Jody Shenn

June 26 (Bloomberg) — U.S. homeowners with good credit are increasingly falling behind on mortgage payments, a sign lenders have been offering “higher risk” loans outside the so-called subprime market, Standard & Poor’s Corp. said today.

Rising late payments and defaults on so-called Alt A mortgages made last year are “disconcerting” and delinquent borrowers appear to be “finding it increasingly difficult to refinance” or catch up on their payments, S&P analysts said today in a statement. “Serious” delinquencies, foreclosures and seized property among “prime jumbo” mortgages in bonds from 2006 reached the highest among loans of less than 13 months since at least before 2000, S&P said in a separate report.

Alt A home loans are granted to borrowers with generally good credit scores who opt for unusual loan terms or underwriting standards, such as reduced proof of their pay, without enough offsetting positive attributes.

S&P, one of the two largest ratings firms, is now “examining how the risk profile clearly increased” in the Alt A market, it said in a statement sent by e-mail today. “We will communicate our findings to the market,” S&P said, in language it typically uses ahead of adjusting its rating methodology.

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