Non-Prime Mortgages: Time to Lend Again?


I often hear people wonder aloud why banks won't loosen underwriting standards on home mortgages.I'm beginning to wonder the same thing. That's because I think it is time for lenders to start issuing mortgages to non-prime borrowers again, though not on the same shaky terms that triggered the housing crisis of 2008, of course.

First, the reason why lenders are hesitant to relax loan requirements: The heart of the matter is: Mortgage rates and their profitability margins are so low, it just isn't worth the risk to lend to anyone who is anything but a AAA+ credit-worthy consumer.

Furthermore, it takes an implicit guarantee from Fannie Mae or Freddie Mac, on top of that sterling rating, to make mortgage lending even semi-palatable for a bank or investor.

Originally published