Lenders have seen some of the worst economy conditions in the last few years, but new reports are indicating that subprime lending could be making a comeback. Subprime lenders have been around for some time, but during the financial crisis, many of them seemingly disappeared. According to online sources, subprime lenders are making a comeback with new nonprime loan offerings. Bill Dallas from NewLeaf Lending in California said, “There needs to be a solution for people who don’t fit in the box, and rebuilding nonprime lending is it.”
Subprime Mortgages' Modest Comeback
“Bill Dallas ran two subprime lenders that collapsed during the financial crisis. Now he’s back in business and plans to start offering what he calls nonprime loans later this year through his latest venture, NewLeaf Lending, based in Calabasas, Calif. “There needs to be a solution for people who don’t fit in the box, and rebuilding nonprime lending is it,” says Dallas. This time, he says, tougher lending rules will require borrowers to put down as much as 30 percent and document their income, credit, and work history.
Lenders are returning to the subprime market, although so far the lending is a fraction of what it was before the mortgage crisis. About $3 billion of subprime mortgages were made in the first nine months of 2013, matching the year-earlier period, according to Inside Mortgage Finance, a trade publication. In 2005, subprime originations reached $625 billion.”
Subprime lending explained in less than 2 minutes
With tougher lending rules out on the market today, consumers are sometimes required to put down up to 30 percent, including more documentation of your income, credit and work history. According to the numbers reported by Inside Mortgage Finance claimed that $3 billion of subprime mortgages issued in the first 9 months of 2013. A subprime loan is typically given out to a person that has a credit score of 660 or less. When the financial crisis hit, the lending companies that were giving out subprime loans were largely blamed for the crisis. Selling high-risk loans with adjustable interest rates that tripled after the first two years required little documentation from the buyer and that caused a huge wave of mortgage loan defaults.
That is when the federal regulators stepped in to restrict the number of high risk mortgages that ended up on the market. Lenders are now requiring credit scores that are much higher than in the past as well as more documentation. One credit group has started to offer subprime loans to those with a credit score between 550 and 599, but they were given a 9.75% interest rate and were required to come up with 30 percent as a down payment.
It would appear that subprime loans are making a comeback, but they are packed with requirements that many of today’s hardworking individuals simply cannot afford.
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