Subprime And Alt-A loans Rise Again
It had to happen again.
Even though just a few years ago banks swore off creative loans like the “ninja” loan, now we find them slowly rising from the meltdown ashes. Like a baseball player coming back from a long stint on the DL, we find at least a couple banks have quietly started offering alt-A loans and other related sub-prime loans.
With so many people not being able to qualify for loans from the major banks due to overly tight guidelines, some smaller banks and credit unions have started offering loans for people who recently recovered from a short sale, bankruptcy or foreclosure.
For now, the subprime and alt-A business remains small, roughly $8 billion total, according to some experts but consider that that amount comprises less than half of 1% of the $1.8 trillion in U.S. home loans last year.
The subprime lenders continue to jump back into the game such as Citadel Servicing Corp. of Orange County and Carrington Mortgage Holdings of Aliso Viejo. These two firms hold the loans on their books rather than selling them to investors.
The Price Is Steep
Many clients have good jobs and have shown that they would be a good risk to take advantage of the hot real estate market. These institutions require 25% to 40% down, depending on credit scores that can drop as low as 500 on an 850-point scale. The customers, who pay a minimum of 7.95% interest, include high income as well as low income borrowers.
With so many eager customers out there, we wonder who will be the next banks to jump back into the subprime circus.