The Acceptance of Responsible Subprime

09/14/2015
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True subprime loans were never the pre-meltdown issue.  It was all the hybrids.  There needs to be a new acceptance of true subprime loans.

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23 thoughts on “The Acceptance of Responsible Subprime”

  1. Chip Wood says:

    credit card debt of more than $3-5000. By 2005 it was a staggering load of $20,30,50000 in credit cards. The banks broke the first rule of lending by giving people money that had no ability to repay!
    They turned to us to save themselves from the preditory credit card debt.
    Check the facts and chart them

  2. Chip Wood says:

    credit card debt of more than $3-5000. By 2005 it was a staggering load of $20,30,50000 in credit cards. The banks broke the first rule of lending by giving people money that had no ability to repay!
    They turned to us to save themselves from the preditory credit card debt.
    Check the facts and chart them

  3. Chip Wood, did only part of your comment appear? Please re-post. Thanks

  4. Chip Wood, did only part of your comment appear? Please re-post. Thanks

  5. Peter Citera says:

    I've been saying almost verbatim the same thing that you brought up in this blog for at least three years in conference presentations and LO trainings. "Subprime" is just a word. It means "less than prime." Period. It doesn't need to carry with it any negative connotations because of the issues of the last decade. We had responsible subprime lending long before it was taken to insanity – longer-term hybrids, fixed-rates, 20-30% down with full income qualification. If the risk is priced correctly (i.e. higher interest rates), this is a no-brainer to reintroduce to the market. Even alternative income documentation has its place. The bottom line is, every loan product ever created was created for SOMEone. There is no one-size-fits-all loan product that is right for EVERYone. (Someone needs to get that memo over to the CFPB.)

    The only place that I'd disagree with you is with offering the homeownership rate as evidence. Yes, the homeownership rate is down. However, it was lower in the 1980s than it is now, although not by much. One could just as easily look at the chart that you offered as evidence and say that we're just now approaching sustainable "pre-bubble" homeownership levels. (https://research.stlouisfed.org/fred2/series/USHOWN) I personally agree with your position that the USHOWN rate is too low. However, homeownership rates should be cyclical, and given the chart that you present as evidence, it's difficult to make the economic case for what the "correct" or "sustainable" homeownership rate is at the moment. If industry begins to take the position that we don't want to leave qualified borrowers on the sidelines – and our regulators begin to support that position – the "new sustainable" homeownership rate will become evident over time.

  6. Peter Citera says:

    I've been saying almost verbatim the same thing that you brought up in this blog for at least three years in conference presentations and LO trainings. "Subprime" is just a word. It means "less than prime." Period. It doesn't need to carry with it any negative connotations because of the issues of the last decade. We had responsible subprime lending long before it was taken to insanity – longer-term hybrids, fixed-rates, 20-30% down with full income qualification. If the risk is priced correctly (i.e. higher interest rates), this is a no-brainer to reintroduce to the market. Even alternative income documentation has its place. The bottom line is, every loan product ever created was created for SOMEone. There is no one-size-fits-all loan product that is right for EVERYone. (Someone needs to get that memo over to the CFPB.)

    The only place that I'd disagree with you is with offering the homeownership rate as evidence. Yes, the homeownership rate is down. However, it was lower in the 1980s than it is now, although not by much. One could just as easily look at the chart that you offered as evidence and say that we're just now approaching sustainable "pre-bubble" homeownership levels. (https://research.stlouisfed.org/fred2/series/USHOWN) I personally agree with your position that the USHOWN rate is too low. However, homeownership rates should be cyclical, and given the chart that you present as evidence, it's difficult to make the economic case for what the "correct" or "sustainable" homeownership rate is at the moment. If industry begins to take the position that we don't want to leave qualified borrowers on the sidelines – and our regulators begin to support that position – the "new sustainable" homeownership rate will become evident over time.

  7. Bernie says:

    Good Morning guys – The CFPB is suing every body and wanting to throw people in jail. Even if these are not liar loans and fully qualify loans, the CFPB is calling the shots. Watch in a few months Angel Oaks mortgage will be shut down by the CFPB. I understand and agree with what your saying. But companies are watching the big banks get hit for BILLIONS OF DOLLARS, threats from the current administration for jail time and it goes ad nauseum on and on. I am sorry but until somebody reigns in the CFPB and the committee Eric Holder use to run to catch and criminalize every one in our industry just saying the words sub prime can get you into trouble..

    1. Subprime says:

      The new subprime lenders still have to follow the ATR rules as well as the Section 32 requirements. They are under more scrutiny and audits but the banks that are doing this right are not being sued….

  8. Will says:

    Sky is Falling!!! Unfortunately Bernie couldn’t be further from the truth. Riddle me this… after creating the new rules of what a QM loan is, why did Raj Date the #1 at the CFPB, resign to start his own Subprime Company, Fenway Summer? The loans Angel Oak and other Non Prime players like Citadel Servicing, etc. are all inline with the new rules of QM, non QM and ATR. What the government doesn’t want are companies making loans to people who don’t understand the terms nor have the documented ability to repay. With the NMLS you hold the MLO liable, with QM you hold the lenders liable. Nuff Said! Subprime is necessary to the economy and to get money moving. Welcome Back!!

  9. Ben Yost says:

    Sub-FHA; Sub-Fannie and Sub-Freddie sound better!

  10. Ben Yost says:

    Sub-FHA; Sub-Fannie and Sub-Freddie sound better!

  11. Nice spin guys. If you wanted to get people interested in "subprime" lenders again, you can't change their minds of the nightmare they all experienced. It is easier to change the name, even if you don't want to. At least try. As a former loan originator who believed in the concept you define here in this video post, it is hard to ignore the abuse. There is just no changing that. I hate subprime. So try: Nearprime. Isn't it reffffffffreeeeeeeshhhhhing…. oooohhh. Go on, say it…

  12. Nice spin guys. If you wanted to get people interested in "subprime" lenders again, you can't change their minds of the nightmare they all experienced. It is easier to change the name, even if you don't want to. At least try. As a former loan originator who believed in the concept you define here in this video post, it is hard to ignore the abuse. There is just no changing that. I hate subprime. So try: Nearprime. Isn't it reffffffffreeeeeeeshhhhhing…. oooohhh. Go on, say it…

  13. John Bowen says:

    Gentlemen…you're singing a very old song that is likely irrelevant for the current market. Let's talk affordability, housing bubbles and the liklihood of a signifigant price correction on the horizon. Overlap your chart with Shiller index and you'll see that housing prices are way out of wack with income. It's not a matter of needing more lending options. Rates remain at historical lows…and the ownership rates continue to drop. Your analysis of the situation is far too simplistic.

  14. John Bowen says:

    Gentlemen…you're singing a very old song that is likely irrelevant for the current market. Let's talk affordability, housing bubbles and the liklihood of a signifigant price correction on the horizon. Overlap your chart with Shiller index and you'll see that housing prices are way out of wack with income. It's not a matter of needing more lending options. Rates remain at historical lows…and the ownership rates continue to drop. Your analysis of the situation is far too simplistic.

  15. anonymous 12 says:

    Seriously, I have a small business with W-2 income of $75k, (gross income of $600k, 6 cash flow positive rentals, credit score of 753, no consumer debt. Reserves etc. Just trying to lower my primary residence rate from 4.875 to 4%. Been turned down five times trying to get it approved with Fannie Mae lenders. Oh, also house appraised at $800K owe $389k. Common sense says I’m a good risk but I don’t fit in the 8-5 worker box since I have multiple income streams from self employment. It’s stupid and unfair. My local bank will fund my new rentals with no issue.

    1. BrianTheMortgageGuy says:

      Are you showing a profit high enough after all your expeneses that could handle each of your minimum reporting to the credit bureaus + your taxes and insurance on each of your residences?

  16. AMEN! BUYER SELF EMPLOYED WITH 800 CREDIT SCORE 20% DOWN PAYMENT CANNOT BUY BUT BUYER AT 630 CREDIT SCORE SALARIED GOING USDA 100% FINANCING GETS A LOAN……DISCRIMINATION!

  17. AMEN! BUYER SELF EMPLOYED WITH 800 CREDIT SCORE 20% DOWN PAYMENT CANNOT BUY BUT BUYER AT 630 CREDIT SCORE SALARIED GOING USDA 100% FINANCING GETS A LOAN……DISCRIMINATION!

  18. show the income, your buyer want best of both, no income to IRS but income to buy a house. as for USDA and its GUS, that program/system should be reined in.

  19. show the income, your buyer want best of both, no income to IRS but income to buy a house. as for USDA and its GUS, that program/system should be reined in.

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