Some mortgage products that were widely used prior to the Great Recession, and cited as one of its main causes, are said to be making a comeback – and that’s becoming a concern for those worried about an impeding new recession, HousingWire reported.
The volume of home loans with “alternate documentation” has more than doubled in the last couple of years among loans included in mortgage-backed securities, Fitch Ratings said in a recent report.
And although those alt-doc loans have generally performed well since the Great Recession, Fitch analysts say they’re still worried.
“Although alternative document residential mortgage loan products that were introduced in the U.S. after the financial crisis have performed better than our expectations, we maintain a cautious approach to these loans because of their limited history,” Fitch analysts said in their report.
One such no-income, no-asset mortgage program called the Agency NINA was recently announced by the 360 Mortgage Group. It does not require borrowers to prove their income or assets to be approved for the loan. The loan program is available to investors, but not owner occupants.
These riskier loan products are appealing to borrowers who may be unable to qualify for a loan using traditional underwriting due to, for example, high personal debt-to-income ratios.
So far, the loans have been performing better in recent years due to the Ability-to-Repay rule and other protective measures that have taken affect since the housing crisis, Fitch said.
The Ability-to-Repay rule, “combined with increased third-party due diligence and improved alignment of interests with issuers, have all contributed to better than expected performance,” Fitch said in its report.
But when the housing market cycle turns, the industry will need to be prepared. The agency concludes: “Fitch will likely need to observe continued strong performance over a longer horizon before making any significant changes in its approach to the programs.”