HOUSINGNEWS REPORT
THE RETURN OF RISK: SUBPRIME SNEAKING BACK
U.S. FORECLOSURE RATES BY LOAN VINTAGE
SHARE OF ACTIVE LOANS IN FORECLOSURE
FORECLOSURE RATE - ALL LOAN VINTAGES
“We know there are many unconventional borrowers out there who are being held back from getting a home loan because they don’t fit the typical borrower profile. Many potential homebuyers have great income, for example, but because they are self-employed or do not have consistent paychecks, many lenders are turning them down.”
1.60%
1.40%
1.20%
1.00%
0.80%
0.60%
0.40%
PARKES DIBBLE DIRECTOR OF MORTGAGE PRODUCT INNOVATION EMBRACE HOME LOANS
0.20%
0.00%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
• Student debt grew from $580 billion to $1.38 trillion. The total now exceeds $1.5 trillion.
weekly wages have increased just 13 percent during the same period, according to ATTOM. Combine growing debt levels with lagging incomes and rigid QM debt-to- income (DTI) limits and the result is that borrowers off even by a few dollars can’t get financing. explains real estate columnist Jack Guttentag, professor emeritus of finance at the Wharton School of the University of Pennsylvania, “the loan does not qualify, even if the borrower is putting 40 percent down and has a perfect credit record. The borrower, in this case, would have to go to a non- qualified mortgage lender.” The Nonprime Alternative There’s no standard definition for such terms as subprime, nonprime or near-prime . It’s not just a credit score of 550, 600 or 620. The Consumer Financial Protection Bureau (CFPB) If the borrower’s debt-to-income ratio is 44 percent instead of 43 percent,
says that a subprime loan is “generally a loan that is meant to be offered to prospective borrowers with impaired credit records. The higher interest rate is intended to compensate the lender for accepting the greater risk in lending to such borrowers.” In reality nonprime status can be triggered by a variety of factors. Borrowers may find they do not qualify for prime financing because their debt payments are too high (DTI issues), they lack reserves, the property does not provide enough security for the loan (LTV concerns), or their paperwork does not meet the usual standards — a particular problem for the self- employed and small business owners. “We know there are many unconventional borrowers out there who are being held back from getting a home loan because they don’t fit the typical borrower profile,” said Parkes Dibble, director of mortgage product innovation with Embrace Home Loans.
• Auto debt rose from $810 billion to $1.22 billion.
• Total non-housing debt went from $2.71 trillion to $3.82 trillion.
While monthly costs have been rising, incomes are largely flat. Real median household income in 1999 was $58,665 according to the Census Bureau. Despite declining unemployment levels, the figure rose to only $59,039 in 2016, a bump of just a few hundred dollars over 17 years. And while wages have increased more substantially on a percentage basis over the last five years — thanks to a sharp drop in average wages in the wake of the Great Recession — they have still been far outpaced by increases in home prices. Since bottoming out in Q1 2012, median home prices nationwide have increased 75 percent while average
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JULY 2018 | ATTOM DATA SOLUTIONS
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