Did you think that we had seen the end of the subprime home loan? We probably haven’t. In many parts of the country, lenders are rolling out the subprime mortgage loan for people who can’t seem to qualify for a traditional loan.
A recent article in the LA Times points out just a few of today’s subprime mortgage borrowers and the subprime lenders who are happy to lend to them. The borrowers have recently went through a financial hardship, but overall are a good financial risk and the lenders are happy to increase the rates they charge which the borrowers view as a bridge loan.
Michele and Russell Poland’s credit was shot, but they managed to buy their suburban dream home anyway.
After a business bankruptcy and a home foreclosure, they turned to a rare option in this era of tightfisted banking — a subprime loan.
The Polands paid nearly $10,000 in upfront fees for the privilege of securing a mortgage at 10.9% interest. And they had to raid their retirement account for a 35% down payment.
Most borrowers would balk at such stiff terms. But with prices rising, the Polands wanted to snag a four-bedroom home in Temecula near top-rated schools for their 5-year-old son. By later this year, they figure, they’ll be able to refinance into a standard loan.
“The mortgage is a bridge loan,” said Russ Poland, now working as an insurance investigator. “It was expensive, but we think it’s worth it.”
In the aftermath of the housing crash, there’s no shortage of Americans who, like the Polands, are eager to rebuild their shattered finances. In response, lenders are emerging to offer the classic subprime trade-off: high-priced loans for high-risk customers.
The subprime mortgage loan business used to be huge – but since the housing crash, subprime loans have been virtually non-existant. Until now.
Before the housing bust, a sprawling business arose in subprime mortgages and their cousins, so-called alt-A loans, which were issued to people who had decent credit but did not have to prove income. About $1 trillion in subprime and alt-A loans were originated in 2005 and again in 2006 — more than a third of all home loans, according to the trade publication Inside Mortgage Finance.
But the explosion of mortgage defaults that began in late 2006 vaporized an entire industry of subprime specialists. The Wall Street firms that had bundled the loans into securities soon began to implode as well. Little wonder that loans for the credit-challenged disappeared.
Today’s high-risk lenders differ from those during the housing boom in key ways. These lenders say the new subprime mortgages are actually old school — the kind of loans made in the 1980s and 1990s. In other words, a borrower’s collateral matters, down payments matter, income and ability to pay matter.
In the right situation, subprime loans can make a lot of sense. If you have been through a foreclosure but have assets and a stable work history – then it might be right for you. Get a free quote from a great subprime lender by completing your information right here – we will help you find the right subprime mortgage lender for you.
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