The widespread return of the subprime mortgage business will be the big event for the mortgage industry in 2015.
At first glance, this may seem like one of the more wild and outrageous predictions among the widespread
As origination volume has been shrinking, lenders
The subprime market has already seen some recent signs of life, with both
The last piece of the subprime puzzle is the return of the 3% down payment conforming mortgages. The conforming product includes mortgage insurance as a credit enhancement, while some lenders, including TD Bank, are also offering a 3% down payment loan program without mortgage insurance.
The recent cut to the Federal Housing Administration's
There has always been a need for subprime mortgage products. Before the late 1990s through mid-2000s subprime lending boom, lenders were cautious about how they originated these loans and servicers were proactive in making sure borrowers made their payments.
But as more and more people saw the money they could make in this business, they jumped in head-first. The increased competition led to lower credit standards among aggregators and securitizers. Loan officers found originating subprime loans was much easier than FHA lending, which resulted in FHA
Even though subprime mortgages will fall outside the QM safe harbor, the next generation of subprime lending will still be safer than its predecessors because of ability-to-repay regulations.
Many believe the ATR rule will be crucial to the success of 3% down payment lending and the mandate for lenders to comply with the regulation will do the same for subprime — resulting in a safe, sound and successful alternative mortgage product.
Brad Finkelstein is the originations editor of National Mortgage News.