The subprime mortgage that were said to be responsible for the last housing crisis are making a comeback – but this time they’re being called “nonprime” loans. The new lending option has higher quality standards and is said to be a viable alternative for those with damaged credit ratings.
One company expanding its nonprime loan offerings is Carrington Mortgage Services in California.
“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. “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 said it can qualify buyers with credit ratings as low as 500. The company plans to manually underwrite each loan itself, and will provide finance up to $1.5 million on single-family homes, townhomes and condos, it said. It said it will consider borrowers who’ve had financial problems recently, including those with foreclosures, bankruptcy or late payments in their history. However, these kinds of borrowers are also required to stump up a larger down payment, and the interest rate on their loan would be higher than normal.
“What we’re talking about is underwriting that goes back to common sense sort of practices,” Sharga said. “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.”
Angel Oak and Caliber Home Loans are two more companies embracing the idea of nonprime loans. In the case of Angel Oak, more than 80 percent of its loans are of the nonprime variety.
“We believe that more competition is positive for the marketplace because there is strong enough demand for the product to support multiple originators,” said 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.”