Like in the Tom Cruise / Emily Blunt film “Edge of Tomorrow.” we keep awakening to a repeat of the same subprime expansion. “How many times have we been here?” “For me, its been an eternity.”
First there were was Clinton’s National Homeownership Strategy that encouraged HUD partners to streamline underwriting to get more households into home ownership. Second, one of the byproducts of this march to greater home ownership was the reliance on credit score as a predictor of mortgage default, exclusively. This begat ALT-A mortgage financing (low doc, no doc. NINJA (no income, no job), etc.) that blew up catastrophically. Then came subprime auto lending which as seemingly run out of steam. Now, like Tom Cruise’s character in “Edge of Tomorrow,” we have awoken to a repeat of subprime lending boom, but this time called “non-prime.”
CNBC – Diana Olick – They were blamed for the biggest financial disaster in a century. Subprime mortgages – home loans to borrowers with sketchy credit who put little to no skin in the game. Following the epic housing crash, they disappeared, due to strong, new regulation, and zero demand from investors who were badly burned. Barely a decade later, they’re coming back with a new name — nonprime — and, so far, some new standards.
California-based Carrington Mortgage Services, a midsized lender, just announced an expansion into the space, offering loans to borrowers, “with less-than-perfect credit.” Carrington will originate and service the loans, but it will also securitize them for sale to investors.
Rick Sharga said Carrington will manually underwrite each loan, assessing the individual risks. But it will allow its borrowers to have FICO credit scores as low as 500. The current average for agency-backed mortgages is in the mid-700s. Borrowers can take out loans of up to $1.5 million on single-family homes, townhomes and condominiums. They can also do cash-out refinances, where borrowers tap extra equity in their homes, up to $500,000. Recent credit events, like a foreclosure, bankruptcy or a history of late payments are acceptable.
*Senator Elizabeth Warren (D-MA) is really going to be angry about Carrington’s non-prime loan product since it does not fall under The Federal government’s purview since it is a privately managed investment management company and not a depository institution.
All loans, however, will not be the same for all borrowers. If a borrower is higher risk, a higher down payment will be required, and the interest rate will likely be higher.
“We believe there is actually a market today in the secondary market for people who want to buy nonprime loans that have been properly underwritten,” said Rick Sharga, executive vice president of Carrington Mortgage Holdings. “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.”
No, but we are in the bad old days of low wage growth.
and asset bubbles where households feel the urge to buy housing before it gets any more expensive.
Seemingly the same mindset as the 2000s. Except this time around home prices are rising rapidly and home ownership has returned to early PRE-CLINTON levels.
But the GSEs, Fannie Mae and Freddie Mac, have raised their Debt-to-income (DTI) ratios to 50%, so perhaps we need yet another definition covering excess debt borrowers. “Not-so-prime” borrowers?