The rise of unconventional loans

Home buyers with low credit scores or high debt levels as well as those without traditional jobs find it easier to obtain credit because the strict loan requirements put in place as a result of the financial crisis is starting to erode, according to the The Wall Street Journal.

WSJ says subprime loans are making a comeback as subprime mortgages and Alt-A are rebranded as unskilled loans.

Borrowers took out a record number of such loans in 2018, at $ 45 billion, the most in a decade, and are expected to take more in 2019. Supporters say mortgages have become too difficult to obtain after 2008, and unconventional loans, such as as non-QM loans, could open up the housing market to healthy borrowers who had been excluded from it.

“There are standards and practices that are weakening,” Eric Kaplan, director of the housing finance program at the Milken Institute said on the Wall Street newspaper. “As far as I know, it is not yet on the same level as some of the things that happened just before the crisis. But we must be vigilant. “

Non-bank lenders are largely the ones providing non-traditional lending, but major banks such as JPMorgan Chase & Co., Credit Suisse Group AG, and Citigroup Inc. have recently introduced mortgage bonds backed by unconventional loans. .

The mortgage branches of the big banks always avoid riskier borrowers, leaving them to non-bank lenders. Despite the rise in unconventional lending, the unconventional mortgage market is still small compared to the rest of the mortgage market, as well as its pre-crisis past, when unconventional borrowing peaked at over 1,000. billions of dollars.

“However, the increase in unconventional loans shows that lenders are looking further for their customers”, WSJ says Ben Eisen. “As the economic expansion of the United States ages and home prices rise faster than the incomes of most Americans, the mortgage industry is finding that there are a limited number of blue chip borrowers. “

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