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.

By Teresa at MSN Real Estate May 3, 2013 10:09AM

(© SuperStock)They're ba-ack.


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 below

But 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?

Tags: loans
Jan 6, 2014 12:32PM
SubPrime now Known as Alt A is not only the Best way for self-employed borrowers to get a Mortgage Loan, it may be the only way.




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Nov 8, 2013 10:31PM
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Nov 8, 2013 10:23PM
I’m Mary Berry by name. I live in USA, i want to use this medium to alert  all loan seekers to be very careful because there are scammers everywhere.Few months ago I was financially strained, and due to my  desperation I was scammed by several online lenders. I had almost lost hope until a friend of mine referred me to a very reliable lender called Mrs. Born Hook  who lend me an unsecured loan of $85,000 under 2hours without any stress. If you are in need of any kind of loan just contact him now via: I‘m using this medium to alert all loan seekers because of the hell I passed through in the hands of those fraudulent lenders. And I don’t wish even my enemy to pass through such hell that I passed through in the hands of those fraudulent online lenders,i will also want you to help me pass this information to others who are also in need of a loan once you have also receive your loan from Mrs. Born Hook, i pray that God should give him long life.
God bless him forever.
Jun 29, 2013 12:43PM
This should not be a surprise to anyone on here. And as citizens we need to stop blaming the true victims of this scam. The problem here is "too big to fail." If you want to find the source of a problem, follow the money. The money is not with the borrower; it is with the banks. Do you honesty believe these banks are loaning this money to people they know good and well can't pay it back without something in it for them? No. What's in it for them? First, the borrow has to pay them money in the down payment. Secondly, if they default, the bank gets their money and the property. Thirdly, as soon as these mortgages are originated, they are put into a trust where the risk is swapped away. And if the policy that they have on a nonperforming loan does not pay them, they can always threaten the government yet again "well if you don't pay me to fix this and I collapse, I'm taking the whole US economy with me." Keep in mind what we did in 2008 to stabilize this nonsense: made the banks even bigger than they already were by putting failing investment banks into huge megabanks. This time they are even moreso too large to fail. But the rich folks running the show do not care. They get take the savings of someone who simply wanted to own a home, take that home in foreclosure, get someone else on the hook for it whether they can pay it or not. It doesn't matter because they will not have to take the loss. These people made an absolute fortune in the 2008 financial collapse. I believe it was a deliberate transfer of wealth (and therefore power) to a certain group of people. We love to point to Bernie Madoff and say what an a$$-hole he was, but in reality, the whole system is Bernie Madoff. Oh... and mark my words: I'm willing to bet this happens all over again.
Jun 29, 2013 9:51AM
Not a good idea. Past performance is the best predictor of future performance.
Jun 29, 2013 7:02AM
why are they allowed to do this again?  Who is getting a cut in doing this.  The laws aren't strong enough for the criminals I guess.  So, everyone watch your pocket book  Wall street is after your money
May 6, 2013 8:31PM

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!

May 6, 2013 5:47PM
The idea is to ask for their life's savings and a bunch of borrowed dollars as a down payment, high interest rates guaranteed to do nothing more than sky rocket and make damn sure they will fall on their faces within 6 months. Turn over the property and start all over again with the next sucker willing to give them their life's savings and bite onto the guranteed foreclosure bullet.
May 6, 2013 3:52PM
There were many honest folks hurt by the housing market down turn who may have lost a job or gotten buried by an undesirable mortgage and can and want to own again. Unlike some here who think once you get knocked down by job loss and possible bankruptcy your scum and unable to get your act together. 
I think so many people were hurt by this, there is a real market for honest hard working people who want to own again. Hopefully they wont be exploited for the want by unreasonable terms.
May 6, 2013 11:11AM
i was a credit buyer in the late 90's and was basically forced by the company to make loans like this to people with horrible credit and not much down payment and the interest rate was astronomical. we then packaged the loans and sold them. What a disaster. this is just the banks dipping their toes back into the sub-prime market. they will jump in head first after the profits start rolling in.
May 6, 2013 7:22AM
Actually, 454boy it refers to the loan given to those with less than perfect credit.  Those who don't qualify do not get the prime rate, therefore they get the sub-prime rate...
May 6, 2013 3:43AM

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 !

May 5, 2013 10:01PM
Don't believe it!!!  These buyers are fictitious - a lame attempt to put positive spin on a dead real estate market! Decades back, the housing market exploded with the arrival of the huge baby boomer population. That population is now in the process of dying (and has been for years). With this, there has been a surplus of vacant housing, since population growth has never compared to the boom era. This story is nothing but PR from the banks and housing industry - and probably politicians, since government cashes in annually on real estate taxes. (And boy...weren't they happy to see home prices escalate and increase these taxes several fold.)
May 5, 2013 9:33PM
Well, since most here want to politicize everything, let me say this:

Democrats and Republicans both suck a**.
May 5, 2013 8:02PM
Well, banks are in the business of lending money, so, it's a sure bet that a certain percentage would be "non-performing" eventually.  Nature of the beast, so don't cry when you have a lot of defaults if you watered down your standards in the first place.  In the 80s and 90s, there were things called "NoDoc" loans--banks accepted 30% down for issuing a mortgage--later sold to the taxpayers-- with NO credit check at all.  You'd have to be crazy, or a Democrat, to expect the taxpayer to indemnify these loans.  To hell with these banks.  "Too Big to Fail, my crack"
May 5, 2013 7:19PM

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



May 5, 2013 7:16PM
To someone(colinrow) -- I believe "subprime " refers to someones CREDIT, not interest. most subprime loans carry a very high rate, which makes it very difficult to reduce the principle - a reason why most of those loans wound up under water. The one that needs to WAKE UP is you !!!
May 5, 2013 7:10PM

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.

May 5, 2013 7:08PM
Well here we go again! Not only does the payment go soley to the interest, it would take the home owner till they were 90 to pay the loan off because they usually have a reset on the interest of the loan witch means  the interest will start moving all over the place when the rates go up and change around, they will never be able to pay off the loan and if they did the penalties to pay off a loan early plus all the other fees to pay a loan off it just would not be worth it, to be in a sub prime the bankers will win again! BAD LOANS BAD BANKING and BAD for the ECONOMY! 
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