Subprime Loans Are Out Nonprime Loans Are In

Subprime Loans Are Out Nonprime Loans Are In

 More executives are working to revive the subprime lending market, though the loans now are called “nonprime” and require as much as 30 percent down. Lenders believe this niche holds opportunity for growth as stricter federal standards keep millions of Americans with bad credit out of the mortgage market.

Nonprime loans go to the riskiest borrowers – including those with low credit scores, high debt loads or an inconsistent income.

Bill Dallas, CEO of Skyline Financial Corp. in Calabasas, Calif., intends to offer nonprime loans through his new company, NewLeaf Lending. “You’re going to have to make all types of loans, ones that conform to all the new standards and ones that don’t, to keep powering the housing recovery,” says Dallas. “There needs to be a solution for people who don’t fit in the box, and rebuilding nonprime lending is it.”

Subprime mortgages account for about $3 billion in the first nine months of last year, or just a fraction of the $625 billion originated in 2005, according to trade journal Inside Mortgage Finance. Investors this time around are avoiding subprime, so lenders must either hold onto their loans or sell them to private equity firms until they have a track record strong enough to offer mortgage-backed securities to investors.

The Federal Housing Administration and Ginnie Mae, which packages FHA subprime loans into bonds, are the main sources of help to nonprime borrowers.

New federal rules, including the Consumer Financial Protection Bureau’s new Qualified Mortgage regulations, shut off many borrowers with credit scores below 660 from the mortgage market. New subprime lenders are pursuing these borrowers with loans that often fall short of the CFPB’s standards but that reduce risk by requiring documentation of income and significant downpayments.

Source: Bloomberg (01/29/14) Howley, Kathleen M.

Sheri Everard Headshot
Phone: 941-545-3773
Dated: February 4th 2014
Views: 619
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