Will a Subprime Loan Comeback Jeopardize the US Housing Market?
By Maggie Wilson @ Real Estate Daily
April 2, 2018

Home loans issued to people with blemished credit histories are on the rise. While these types of loans were almost nonexistent after the near collapse of the global financial system a decade ago, they are starting to make a comeback. Such “subprime” loans are thought to be less risky than their counterparts from a decade ago since sponsors of these deals must retain at least 5% interest in the pools of loans offered, and lenders have to take account of the capability of the borrower to pay back the loan. This gives Realtor a wary perspective, since these loans could negatively affect the market in the near future.

Key Takeaways

  • Lenders have been issuing more and more “subprime” loans to borrowers with less-than-ideal credit histories.
  • These loans are considered non-qualified mortgages since they are not eligible to be purchased by government-backed mortgage enterprises and they cannot be insured by Federal Housing Administration.
  • Various analysts believe that these loans are safer than the ones used last decade that tested the financial system because there are more regulations on the loans.

Excerpt

Issuance of securities backed by riskier US mortgages roughly doubled in the first quarter from a year earlier, as investors lapped up assets blamed for bringing the global financial system to the brink of collapse a decade ago.

Home loans to people with scratches and dents in their credit histories dwindled to almost nothing in the aftermath of the crisis, as litigation-weary lenders retreated to patch up their balance sheets. But over the past couple of years, a group of specialist firms has begun to bring the loans back, navigating a dense web of new rules drawn up to protect borrowers and investors in the $9.3tn US home-loan market.

Last year saw the issuance of $4.1bn of securities backed by loans that would have been called “subprime” before the last financial crisis, according to figures from Inside Mortgage Finance, with the pace picking up in the latter half of the year. The momentum has continued into 2018, with deals worth $1.3bn in the first quarter — twice the $666m issued in the same period a year earlier.

View the original article at CNBC