This is the new name of Subprime mortgages.
Gone are the days when lenders handed out mortgages without requiring documentation and down payments. Today’s purveyors of subprime call the loans ’nonprime’ and require as much as 30 percent down to safeguard their investment. And they see a big opportunity for growth as tougher federal lending standards shut out millions of people with poor credit from the mortgage market.
One statement that came out of America concerning this earlier this year was “You’re going to have to make all types of loans, ones that conform to all the new standards and ones that don’t, to keep powering the housing recovery, there needs to be a solution for people who don’t fit in the box, and rebuilding nonprime lending is it.”
The current level of subprime lending is a trickle compared with the flood that helped spur the housing boom. The loans are made to the riskiest borrowers, with low credit scores, high levels of debt and inconsistent income.
Investors are taking a pass on subprime for now. Lenders have to either hold onto their loans or sell them to private equity firms until they establish a strong enough track record to offer mortgage-backed securities to investors.
The bundling of subprime mortgages into securities to sell to investors will not be viable for a few years. Investors will not buy subprime bonds unless the mortgages have low loan-to-value [a comparison of the mortgage balance to the worth of the home] and borrowers have proven their income.
The question arises why does it have to be connected with subprime even in name only, why did they not just release a new product that was viable for the market?