Subprime mortgages were widely blamed for causing the financial disaster a decade ago and now they’re coming back with a new name, CNBC staffer Diana Olick reports.
Nonprime loans are popping up more and more, including an offering from California-based Carrington Mortgage Services, a midsized lender. The company just announced an expansion into the space, offering loans to borrowers, "with less-than-perfect credit,” Olick notes. Carrington will originate and service the loans, but it will also securitize them for sale to investors.
"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."
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.
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.
Subprime stages comeback as 'non-prime' loans from CNBC.Read More