HOUSINGNEWS REPORT
THE RETURN OF RISK: SUBPRIME SNEAKING BACK
A SAMPLING OF NONPRIME FLAVORS • Carrington Mortgage Services offers nonprime home loans that can be used to purchase, refinance or cash-out. Credit scores from 500 to 640 may be acceptable and the program is open to those with “high debt-to-income ratios, who are self-employed or who have had a recent credit event — such as foreclosure, bankruptcy, short sale, missed credit card or late mortgage payments — and may not be eligible for conventional or government loan products.” To make such fixed and adjustable-rate loans work, Carrington manually underwrites the loans and requires a solid down payment — in practice perhaps 15 percent or more — as well as a strong DTI. Mortgages up to $1.5 million are available and cash-out borrowers can get as much as $500,000 at closing. • Citadel Servicing Corporation offers a VOE only program which is available for those with credit scores down to 650. Loans for as much as $5 million are available, first-time buyers can finance as much as $1 million. The program requires 25 percent down to purchase and 30 percent equity to refinance. No IRS Form 4506T is required. Instead the borrower must be able to document two years of employment. There are additional requirements for a business owner or officer. Employment is also verified at closing.
“Remember Alt-A mortgages? These were such things as option ARMs and interest-only mortgages which required little or no documentation, had adjustable rates, and allowed negative amortization during start periods. According to the Federal Reserve Bank of Chicago, Alt-A loans were “generally made to borrowers with good credit ratings, but the loans have characteristics that make them ineligible to be sold to the Government-Sponsored Enterprises (GSEs) — for example, limited documentation of the income or assets of the borrower or higher loan-to-value ratios than those specified by GSE limits. ”
documentation, had adjustable rates, and allowed negative amortization during start periods. According to the Federal Reserve Bank of Chicago, Alt-A loans were “generally made to borrowers with good credit ratings, but the loans have characteristics that make them ineligible to be sold to the Government-Sponsored Enterprises (GSEs) — for example, limited documentation of the income or assets of the borrower or higher loan- to-value ratios than those specified by GSE limits.
assured that such mortgages could only be refinanced after several years. Too often while Alt-A balances grew, home values declined. Once start periods ended, Alt-A borrowers were then in the position of not being able to sell the property because it was worth less than the loan balance and also not able to carry the fully- amortizing monthly payment. The result was a disaster for borrowers, lenders, and mortgage investors. Rate Risk The ultra-low mortgage rates which made rising prices tolerable are now
That’s not all. For many Alt-A borrowers hefty prepayment penalties
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JULY 2018 | ATTOM DATA SOLUTIONS
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