Subprime mortgages – which were blamed for sparking the last housing crisis – are reappearing, but this time they’re dubbed nonprime loans. This lending option, which carries new quality standards, is growing for buyers with damaged credit.
Nonprime loans widen mortgage choices
California-based Carrington Mortgage Services is one company expanding its nonprime loan offerings.
“We believe there is actually a market today for people who want to buy nonprime loans that have been properly underwritten,” Rick Sharga, executive vice president of Carrington Mortgage Holdings, told CNBC. However, he says, “We’re not going back to the bad old days of ninja lending when people with no jobs, no income and no assets were getting loans.”
Carrington Mortgage Services, which intends to manually underwrite each loan, will qualify borrowers with FICO credit scores as little as 500. Borrowers could be eligible for loans as high as $1.5 million on single-family homes, townhomes or condos. The lender will also qualify borrowers who’ve had recent problems reported on their credit histories, for instance a foreclosure, bankruptcy or a history of late payments. But borrowers that are at higher risks are going to be forced to make a bigger down payment, as well as the interest rate on the loan is going to be higher.
“What we’re talking about is underwriting that goes back to common sense sort of practices,” Sharga says. “If you have risk, you offset risk somewhere else. We probably are going to have the widest range of products for people with challenging credit in the marketplace.”
Other lenders are likewise stepping into the nonprime space, including Angel Oak and Caliber Home Loans – and over 80% of Angel Oak loans are nonprime.
“We believe that more competition is positive for the marketplace because there is strong enough demand for the product to support multiple originators,” says Lauren Hedvat, managing director of capital markets at Angel Oak. “Additionally, the more competitors there are, the wider the footprint becomes, which should open the door for more potential borrowers.”
