Lenders are returning to the subprime market – although
still at only a fraction of what subprime lending was before the mortgage
crisis, BusinessWeek reports. Some subprime lenders that collapsed during the
financial crisis are coming back into business with new nonprime loan
offerings.
“There needs to be a solution for people who don’t fit in
the box, and rebuilding nonprime lending is it,” says Bill Dallas, with his new
venture New Leaf Lending in Calabasas, Calif., which will begin issuing
nonprime loans. However, he says this time around tougher lending rules will
require borrowers in some cases to put up to 30 percent down as well as require
more careful documentation of borrowers’ incomes, credit, and work history.
About $3 billion of subprime mortgages were issued during the first nine months
of 2013, according to Inside Mortgage Finance. In 2005, subprime originations
totaled $625 billion. Subprime loans – mostly targeted to those with credit
scores below 660 – took a lot of blame in the financial crisis.
Lenders sold
high-risk products to investors with adjustable-rate mortgage products that had
interest rates that could triple after two years, in some cases. Also, many of
the loans had required little documentation about the borrowers’ income and
assets. The loans were blamed for sparking a huge wave of defaulting borrowers.
Since then, federal regulators have restricted many high-risk mortgage products.
Lenders are also requiring higher credit scores and greater documentation of a
borrowers’ financial situation. Athas Capital Group in Calabasas began issuing
subprime loans last April, offering mortgages at 9.75 percent for borrowers
with a credit score of 550 to 599 who can make a 30 percent down payment.
“We’ve done enough loans to prove to us that it’s a product we’re going to
continue to grow,” says Brian O’Shaughnessy, Athas’s chief executive officer.
“The biggest thing that has held us back is that a lot of brokers don’t know
the product is back. The word ‘subprime’ in a lot of people’s minds is dirty,
but the product today is much different, much safer.” Banks, they are a different breed, for sure!
So it would appear that as long as a buyer has 30% down, and can stomach a 8, 9, 10 % or higher rate, banks are willing to put people in mortgages and homes. Will we ever get back to the days of 5% down or as it seemed, all you needed was a mirror on your breath to get a loan? Never say never, we typically repeat the past mistakes, mainly because "The main thing about money,...., is that it makes you do things you don't want to do." As quoted from the 1987 Movie Wall Street. We all know how that turned out for the main character....jail. Yet no one from the mortgage business seems to have gone to jail.
We shall see.
#LizBobeck
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