“Subprime Loans, What are they?”

More and more is being written about subprime loans or non QM loans. Between Dodd-Frank, the CFPB and Washington, they really have no clue when it comes to the need for the major banks and Wall Street desire for higher returns and profits, they will become more aggressive and take more risk. As these institutions see less revenues from mortgages, they will figure out ways to make more money.

When the original subprime loans came into existence in the late 90’s and into the 2000’s, there was a hunger for higher returns and risks that were being taken, got totally out of hand. Wall Street and many large banks were creating products that were waiting for an explosion ready to happen and it did.

These days, as loan products become more restrictive there is more and more demand for loan products that are not as restrictive. These are loans that will not be purchased by Fannie Mae and Freddie Mac and these loans are going to be described as the “New Subprime”.

Some of the characteristics of the new subprime mortgage are higher interest rates, lower credit scores and less restrictive underwriting guidelines. There are already lenders that will do FHA mortgages down to a 540 credit scores, not sure why that is not considered subprime, but require a higher than normal down payment.

As a mortgage broker, we will constantly be faced with the decision of making one of these mortgages to a client, but if I am not convinced they can make the payment, I am NOT going to do the mortgage.