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Sub-Prime Making a Comeback...Sort Of

By
Mortgage and Lending with First Option Mortgage 269761

What is Sub-prime loan? Sub-prime loans were programs available between 1992 and 2007 that allowed buyers and homeowners the ability to qualify for a loan when faced with credit, income or asset issues. People who worked in the industry during those times will remember the acronyms NINA (No Income/No Assets), SISA (Stated Income/Stated Assets), NISA (No Income/Stated Assets) or the term No Doc loans (No Income, No Assets, No Employment, No money down). The catch phrase was, “If you can fog up a mirror, you can get a loan”.

 

What happened to Sub-prime loans? There are a lot of conspiracy theories as to what happened to the collapse of the real estate industry that took down sub-prime loans. The easiest way to explain what happened was that the government wanted to increase its Public Relations with the people of this country by forcing banks to lend money to people who couldn’t qualify for conventional or government based programs. Many of the programs had interest rates that doubled after 2 years causing the home owner the inability to make the payment. The investors holding those portfolio’s started to lose money due to foreclosures and companies and economies started to collapse. In the end, sub-prime lending was blamed for everything when in fact, the government was the entity that proposed it in the first place.

Will Sub-prime every come back? Sort of. Many of those lenders of the past held on to their beliefs that people should be able to own a home regardless of their situation, however, this time, the buyer or owner for a refinance has to put money or equity into the deal. The idea of 100% financing only exists in government based programs. However, if you have money (at least 10% down), you can still access programs similar to sub-prime. The term is now called Alternative Financing (Alt-A in the industry). The term Alt-A has been around for years, but now Alt-A financing is more relaxed.

Sample of Alt-A programs now available for purchase or refinance for people:

  • With scores as low as 500

  • Who had a recent foreclosure (less than 24 months ago)

  • Who are still in CCCS

  • Who are Foreign Nationals

  • Who had a chapter 7 discharged (within 12 months)

  • Who have open tax liens

  • Who have a tax ID number instead of a social security number

  • Who had a mortgage late or 2 within the last 12 months

  • Whose ex-spouse ruined the credit even though court ordered to pay the debt (this happens a lot)

  • Who receive welfare, food stamps or other government assisted income

  • With Log homes

  • Who want to use bank statement deposits instead of using tax returns