Subprime mortgages are back
A few lenders are offering loans to borrowers with damaged credit. But, unlike during the boom, they are asking for big down payments and lots of documentation.
We don't mean ghosts. But some may see the ghosts of the real-estate crash past in the reappearance of subprime loans.
According to the Los Angeles Times, more lenders are beginning to offer mortgages to customers with lower credit scores.
Post continues belowBut these are not the subprime mortgages that proliferated during the boom, which were bundled into securities and sold on Wall Street. Since the lenders had no risk, they weren't so careful about vetting the borrowers.
Instead, the new subprime lenders are offering mortgages to buyers with credit problems, but they are asking for higher down payments, charging higher interest rates and asking a lot of questions. As the Times writes: "In other words, a borrower's collateral matters, down payments matter, income and ability to pay matter."
In Temecula, Calif., Michele and Russell Poland wanted to get a house in a good school district now, since their son had turned 5. But their credit had taken a big hit from a business bankruptcy and a home foreclosure.
To buy a house, they were willing to make a 35% down payment, pay $10,000 in fees and accept a 10.9% interest rate, about three times the rate paid by borrowers with top credit.
"It was expensive, but we think it's worth it," Russell Poland told the Times. The couple hopes to be able to refinance into a conventional loan within a year.
The subprime business is still a small percentage of the home loan business, less than 0.5% of the loans originated last year. In contracts, more than one-third of the mortgages made in 2005 and 2006 were subprime or "Alt A," meaning borrowers did not have to document their incomes, according to the Times.
The lenders who are moving back into this market see opportunities to give loans to people who can pay them, despite their lower credit scores or past foreclosures.
"There are a lot of borrowers who can make a big down payment, document that they have the income to pay the loan and have a good recent job history — but have a credit score that would make it impossible to get a loan," says Rick Sharga, executive vice president of Carrington Mortgage Holdings, which is one of the companies that is getting into subprime lending.
What do you think? Is making more mortgages available to borrowers with past credit problems a good move for lenders?
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I recently sold my home to a couple who had no business owning such a property. Wells Fargo sold them a 3% down FHA bill of goods. They took nearly three weeks to underwrite. This loan was so dirty that the Wells Fargo Banker came to closing. Never had that happen before. The new owner, for whom I had to pay $5000 in closing cost... came to closing driving a Cadillac Esclade! My guess is they will be living in the Esclade in about six months when Wells Fargo kicks them out.
The debtor is slave to the lender!
If someone had a business failure, bankruptcy and foreclosure, how do they come up with a 35% down payment plus $10,000 in fees for a house at California prices? Obviously they think they are buying in at near bottom prices and will benefit as the market improves. The bank must agree, since they are willing to make the loan. So I say if it works for both parties go for it !
Pedatory, Not SubPrime...This type of Lending should be Illegal. I believe this is as bad as it gets.
Once person gets on the High Interest Treadmil, tha person is doomed...High Interest should be reserved for Short Term Leding.
Predators; Loan Sharking, is what this is....Many of these folk went out o business after the Crash in 2008....So ,many folks lost their home because of these polices....These are Hard Money Loan Sharks, it's that simple. Do you think there's somthing wrong with this? I sure hope so. Corruption in Governnt.
Regulators what are you thinking
Oh the economy is growing fine, that is the personal wealth of CEOs. The Dow Jones means nothing to the average American, except the amount of money from the middle class being skimmed from the top into the accounts of the wealthiest 2 percent. And of course there are the Democrats, many of whom do not want to see a growing underclass of minorities and recent arrivals who sneak across the border. These Democrats tax the daylights out of the working poor and middle class.