More buyers qualify for subprime loans

NEW YORK – Oct. 22, 2015 – “Subprime.” The word holds dramatically different meanings.
Before the housing crisis, the term generally referred to mortgages made to borrowers who didn’t have to prove much – if anything – about their income or financial stability.

Now, the “subprime” mortgages, which the credit bureau Equifax recently reported increased 30.5 percent in the first five months of 2015 from the same period a year earlier, are simply defined as loans to borrowers with a credit score below 620 (the FICO score used in mortgage lending ranges from 300 to 850).

Even though the number of subprime loans jumped by about one-third, they represent just a tiny slice of the mortgage market. Of the 3.26 million mortgages Equifax studied, only 4.6 percent were subprime, growing from less than 4 percent.

Still, the increase means “some lenders will work with a low-score borrower,” notes Keith Gumbinger of HSH.com, a mortgage data firm.

Even government-back Federal Housing Administration mortgages, which before the housing crisis were more forgiving, essentially disappeared for the credit-blemished, says Brian Chappelle of mortgage advisory firm Potomac Partners.

Recently, government changes to the FHA aimed to boost loans to those with scores under 640, says Chappelle. Lenders are still leery, though. “Ask a Realtor if they know of lenders, search the Internet, make calls,” says Chappelle.

In many instances, an FHA mortgage will be more economical because lenders don’t charge a higher interest rate for low scores on these, says Gumbinger. Borrowers can browse a list of FHA lenders at hud.gov.

The business is inching toward a “new normal,” notes Chappelle, finding the middle ground between overly liberal and excessively stringent rules. In the meantime, a low-score borrower has to be prepared for rejection.

“Some will say, ‘Thanks for calling, but we can’t help you,'” concludes Gumbinger.

Copyright © 2015 The Hub, Marilyn Kennedy. All rights reserved, CTW Features.  

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s