Non-Prime Mortgage Solutions: The Comeback No One Expected
Following the financial crisis of 2008, many assumed sub-prime mortgages would become a part of mortgage history. Instead though, the non-prime sector of mortgage financing is growing, demonstrating that proper application of alternative mortgage solutions can be a boon to the market. These non-prime mortgage loans, stigmatized due to a superficial similarity with the sub-prime mortgage bonds blamed for the financial crisis, are handled and approached very differently, resulting in a safer, more beneficial mortgage solutions.
The more conservative nature and handling of these alternative mortgages is a large reason for the recent surge in non-prime mortgage origination. If non-prime mortgage loans are approached with reason, they can be a powerful avenue for homeownership while providing non-prime mortgage lenders a relatively protected profit.
The advantage of these alternative options to consumers and to mortgage brokers is obvious. Home buyers facing some concern about their credit, perhaps due to a credit event such as a foreclosure or short sale, are able to now obtain financing options through lenders providing non-traditional options. On the flip side, mortgage brokers gain the ability to serve a wider customer base and effectively grow their businesses through the new options provided by wholesale lenders. These lenders (both wholesale and retail) also grow their business, expanding their overall loan portfolio and offering attractive securitization options to investors.
Part of what makes the new wave of non-prime lending different is how new non-prime lenders gauge and treat the borrowing ability of each new customer. To help ensure non-prime borrowers will be able to repay their loans, income verification is a real requirement and lending limits are strictly enforced. Interestingly with non-prime home buyers, credit scores are not necessarily an indicator of a borrower’s creditworthiness. Wholesale mortgage lending firms such as Angel Oak Mortgage Solutions instead approach credit by analyzing cash flows and the borrower’s ability to repay.
This in-depth process allows Angel Oak Mortgage Solutions to gauge who might have a low credit score due to a single unfortunate event or situation that was out of their control, or if they have low credit due to regularly missed payments, poor financial decisions, or other factors. Borrowers who regularly miss payments ultimately cost lenders time, money, and reputational damage. By lending only to borrowers who have a documented ability to repay the loan, the new wave of non-prime mortgage lenders can significantly reduce mortgage delinquencies and create a safer non-prime lending products, all while helping borrowers purchase a home.
These facts are ones many new mortgage lenders have taken note of, leading to a booming non-prime mortgage market. As home buyers come to understand that there are mortgage financing options for those with lower credit available, demand for these alternative mortgage loans increases. Wholesale mortgage lenders who’ve listened to and understood the situations of their clientele have developed safe and reliable non-prime lending options, all of which are proving to be a lasting, growing part of the larger mortgage market.
Today’s non-prime mortgages are a very different product from sub-prime mortgages in 2008
Click to find out how they differ