As the market leans more on its mortgage machines, rising mortgage rates and dwindling refinance options are pushing people to turn to a new strategy: subprime.
The word has almost become the equivalent of "the loan type that should not be named," but among some in the industry, that view is changing.
“Given the understandable sensitivity around the word ‘subprime,’ a rebranding strategy is clearly in order,” James Frischling, president of NewOak, said.
Lenders are becoming more creative with their word choice, choosing new, catchy titles like “another chance mortgage” and “alternative mortgage programs," Frischling explained.
And while this sounds like a possible recipe for catastrophe, Frischling disagrees.
As Trey Garrison previously reported, this is not a return to a subprime risk. “At least from the this-is-a-crisis coverage perspective. Historically, subprime is anything below a 640 FICO. But the definition of subprime, as Reuters implies, is ‘overly-risky,’” Garrison said.
Despite this, some subprime lending can be successful.
“Consider subprime lending the non-investment-grade sector of the mortgage market,” Frischling said. “All subprime lending wasn’t bad, just as all non-investment-grade lending isn’t bad. It simply comes down to credit risk.”
Subprime loans will still be scrutinized for the borrowers' ability to repay, in addition to strong underwriting, due diligence and proper documentation.
The main point: do not fear subprime lending. One way or another, it's coming back.