Until very recently, the origination of mortgages and issuance of mortgage-backed securities (MBS) was dominated by loans to prime borrowers conforming to underwriting standards set by the Government Sponsored Agencies (GSEs). Outside of conforming loans are non-agency asset classes that include Jumbo, Alt-A, and Subprime. Loosely speaking, the Jumbo asset class includes loans to prime borrowers with an original principal balance larger than the conforming limits imposed on the agencies by Congress; the Alt-A asset class involves loans to borrowers with good credit but include more aggressive underwriting than the conforming or Jumbo classes (i.e., no documentation of income, high leverage); and the Subprime asset class involves loans to borrowers with poor credit history.
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