Sub-prime mortgages have largely evaporated. What remains are a few offerings in the 10–11% range with nasty prepayment penalties and the potential for future rate resets.

So what do you do if you or your client have sub-prime credit?

Try Fannie Mae’s DU engine. Although most lenders think of Fannie/Freddie as prime credit only, both offer approvals for lower credit grades. Even with a credit score in the high 500’s, you may be able to secure a Expanded Level I, II, or III approval. While these do carry higher rates—7.5% to 8.5%— you can at least secure a safe, standard 30 year fixed rate loan that doesn’t have a prepayment penalty or nasty reset two years down the road. And, 100% financing is available!

And here’s an added bonus. Fannie Mae offers a Timely Rewards Payment Option. If a borrower demonstrates a “Good Payment History”, the lender will lower the rate with fees or refinancing. The following is taken directly from the Timely Payment Rewards Disclosure and Note Addendum:

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