Updated April, 2015
For anyone who remembers the “subprime mortgage meltdown” in the mid 2000’s, you may be surprised to learn that subprime mortgages are making a comeback in 2015. There really isn’t anything magical about 2015 as the year of the “comeback of subprime” – it has been slowly coming back for a couple of years now. While it may be true that the term “subprime” can mean a number of different things to different people, when we refer to “subprime” we mean loan programs that don’t fall under the “Qualified Mortgage” rule set out by the government.
Subprime Lenders in 2015
In 2015, various lenders are now starting to come back into the subprime market and make loans that are considered “subprime” by many people. Some lenders have been dipping their toes in the subprime mortgage market for a couple of years now – a story ran in April of 2013 in the LA Times ran a story about a family who had a foreclosure in their past and got a subprime loan to buy another house with an interest rate that was higher than 10%. While that 10% interest rate may seem high when rates for FHA loans are hovering around 4%, the family felt it was a “good deal” for them and were happy to get approved. The couple pointed out that they viewed it as a “bridge loan” ”“ which can make a lot of sense in a rising real estate market.
From the article:
Michele and Russell Poland’s credit was shot, but they managed to buy their suburban dream home anyway.
After a business bankruptcy and a home foreclosure, they turned to a rare option in this era of tightfisted banking ”” a subprime loan.
The Polands paid nearly $10,000 in upfront fees for the privilege of securing a mortgage at 10.9% interest. And they had to raid their retirement account for a 35% down payment.
Most borrowers would balk at such stiff terms. But with prices rising, the Polands wanted to snag a four-bedroom home in Temecula near top-rated schools for their 5-year-old son. By later this year, they figure, they’ll be able to refinance into a standard loan.
“The mortgage is a bridge loan,” said Russ Poland, now working as an insurance investigator. “It was expensive, but we think it’s worth it.”
In the aftermath of the housing crash, there’s no shortage of Americans who, like the Polands, are eager to rebuild their shattered finances. In response, lenders are emerging to offer the classic subprime trade-off: high-priced loans for high-risk customers.
Before the subprime mortgage crash, subprime loans were common and people didn’t think too much about the impact if “things went bad”. And it wasn’t just subprime mortgage loans that were non-traditional mortgages being issued – the close cousin of subprime is called “Alt-A” loans. It is estimated that more than 1/3 of all mortgage loans originated were at one point Alt-A or subprime mortgages.
Today’s high-risk lenders differ from those during the housing boom in key ways. These lenders say the new subprime mortgages are actually old school ”” the kind of loans made in the 1980s and 1990s. In other words, a borrower’s collateral matters, down payments matter, income and ability to pay matter. Ask first the Firstxtra mortgage advisers on what mortgage is suitable for your needs.
If you are in a situation where you have went through a foreclosure or short sale or bankruptcy and are having trouble getting a “standard” loan ”“ maybe it is time to look into getting a subprime loan again ”“Boston Mortgage lenders are offering them at reasonable terms and if you have the ability to repay it (good job, stable history, big down payment, etc.) then it may make a lot of sense.
Subprime lenders today are different than the subprime lenders in the past ”“ because of new regulations that came as a result of the meltdown. Even though today’s subprime mortgages are what are considered “non qualified mortgages” and don’t fall under the QM safe harbor rules, they do have rules that didn’t exist before ”“ called the Ability to Repay rules.
The “old” subprime loans had no ability to repay rules ”“ and so many people believe that today’s subprime loans are “safer” than in the past.
Subprime Mortgage Programs in 2015
There is a different type of subprime mortgage in 2015 than there was in the early 2000’s ”“ and the programs will vary by lender. It used to be that there were certain types of subprime programs such as stated income, NINA, NINJA, SIVA, etc and largely those programs no longer exist from a variety of lenders. The reason is that many lenders now have “non qualified mortgage programs” which means they are not “qualified mortgage” programs that can be bought up and sold to Fannie Mae and Freddie Mac.
Non qualified mortgage programs can be considered the new subprime ”“ depending on the lender and the program. Lenders who offer non-qualified mortgage programs will portfolio lend ”“ which means they will lend the money and then just hold onto the loan and keep it in their portfolio rather than sell it off on the secondary mortgage market.
Some lenders may have a non-qualified stated income loan program, some may have a NINA loan program and some may have a SIVA loan program. But the only way to know for sure what loan programs are available at a lender is to shop the lenders and see what they have available. And if one lender tells you that they don’t have a stated income loan program, that doesn’t mean one doesn’t exist ”“ it just means that the particular lender doesn’t offer one. Yes, it is a different mortgage world in 2015 than it was in 2007.
Finding a subprime mortgage lender is easy ”“ you can start right here. We have a network of some of the best subprime mortgage lenders who can help you get qualified for a mortgage loan that is right for you. Getting a subprime mortgage quote is easy and only takes a few minutes.