The nonprime mortgage market is often misunderstood. This kind of misconception may have been due to the last decade’s housing crash. Many individuals point their fingers at nonprime’s close cousin, the subprime loan, for what happened. Since then, the nonprime mortgage market was tainted with fear, and doubt.
The fears of nonprime financing began after 2007. In that year, the United States’ housing industry came crashing down taking the nation’s economy along with it.
Many believe that subprime financing was the main culprit. However, there were other reasons why it happened.
The housing bubble burst because lenders failed to determine if their borrowers can truly afford to repay the borrowed money. Moreover, the laws governing the mortgage world were not as defined as they are today. Back then, it was easy to borrow huge amounts of money with very little verification.
In truth, the problem was multifaceted. Therefore, the solution also had to address all these aspects.
Nonprime is Growing Strong
The nonprime mortgage loan is making a come back. This time, it’s better and safer.
Financial Times, nonprime lenders are set to produce around $10 billion in 2017. And although this is a tiny portion of the $1.6 Trillion the overall mortgage loan market has, the nonprime market is growing rapidly.
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Non-banks Dominate Nonprime Market
Nowadays, most nonprime loans are offered by non-bank lenders. They are financial institutions that don’t offer savings or checking accounts and only offers loans. According to the
Washington Post, the domination over the lending market’s landscape has shifted from big banks to non-bank lending companies after the housing crisis.
We all know that the regulatory atmosphere in the housing market greatly changed after the subprime crash. These regulations are meant to lessen the risks by creating 100 percent compliance, zero tolerance regulatory processes.
A clear line was drawn between prime and subprime loans. To some, this line simply defines which side is safe and which side isn’t. Those loans that conform to the new regulations are prime loans and are regarded safe. Those that don’t follow all the rules fall into the subprime category and, therefore, are risky loans.
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From No Rules to New Rules
However, this is not entirely true today.
Nonprime lenders also have learned from the mistakes of the past. Although they may not have standard rules and guidelines like that of prime loans, they have found out that verification is essential in ensuring that borrowers can repay their loans. This way, they don’t put themselves at risk of financial loss.
Nonprime loans may have more lenient and few guidelines, however, most nonprime lenders don’t just dole out their money like it’s free cash. They also make sure that they are compensated for the risks and only offer such loans to those who can truly repay the borrowed money.
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Nonprime Opens Doors for Many Individuals
It cannot be denied that nonprime loans have put families in homes. It has made it possible for many individuals to own a home that they couldn’t have had if they applied for a prime mortgage.
Nonprime financing isn’t for everyone. However, there are so many people who can still benefit from such loans. A person who has a good hold on his
finances and debts, and has a clear plan and understanding on what he wants for his future will look at a nonprime loan as an opportunity.
A nonprime loan is an opportunity for homeownership. It is an opportunity to build or repair credit. It is an opportunity to build assets. It is an opportunity to create financial stability.
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