HOUSINGNEWS REPORT
THE RETURN OF RISK: SUBPRIME SNEAKING BACK
“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.” Nonprime loans do not fit into the usual financing pattern, but that’s okay: a lot of potential borrowers will not qualify under traditional standards, not because they have weak credit — though that’s plainly the case with some — but because the economy itself is in transition.
people work and earn income,” says Fannie Mae, “the inclusion of gig worker income for mortgage underwriting should not be overlooked. Borrowers with a sufficient income history that fit within investors’ guidelines are being served today, but a majority of lenders say that it is difficult to underwrite a mortgage loan with gig economy income due to its instability and unpredictability. This very nature of gig economy income makes it difficult to meet investor requirements, although most lenders believe that the current underwriting standards for self- employed borrowers are about right.”
A catch — a big catch — is that someone with woeful credit today might actually be a good risk. The Smiths may have had excellent credit, but then their employer failed and there was that auto accident. Suddenly the Smiths have low credit scores. Should we exclude the Smiths from the mortgage marketplace? The real answer is that you have to know your borrower; credit scores and data points may not tell the whole story. While a lot of attention has been given to the use of automation and artificial intelligence for mortgage underwriting, that’s not the approach used in some nonprime programs. “At the present time we don’t view any AI programs robust enough to handle the intricacies of nonprime loans,” says Will Fisher, senior vice president of sales & marketing with Citadel Servicing Corporation. “Additionally, if
“Given the growth of the gig economy and its impact on how self-employed
“As subprime grew, eyes were taken off of the automated underwriting systems decisioning, which only exacerbated the problems of the financial crisis.”
WILL FISHER SENIOR VICE PRESIDENT OF SALES & MARKETING CITADEL SERVICING CORPORATION
U.S. HOME PRICE GROWTH VS. WAGE GROWTH
ANNUAL HOME PRICE APPRECIATION
ANNUAL WAGE GROWTH
20% 15% 10% 5% 0% -5% -10% -15% -20% -25%
SOURCES: ATTOM DATA SOLUTIONS, BUREAU OF LABOR STATISTICS
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JULY 2018 | ATTOM DATA SOLUTIONS
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