February 4th, 2016 8:33 AM by Jackie A. Graves, President
This time with better underwriting
originations for subprime borrowers are growing, it’s not the same faulty
mortgages that plagued the financial crisis, as lenders heighten their focus on
consumers’ ability to repay.
"While there are
many characteristics that define a subprime loan, such as the specific terms of
the loan and the lender who issues it, credit standards are becoming more
accommodating to meet market demand," said Amy Crews Cutts, chief
economist at Equifax.
"At the same
time, lenders are focusing more attention on evaluating consumers' ability to
repay. This has led to a much larger reliance on third-party data verifications
that enable lenders to more accurately vet subprime borrowers much earlier in
the origination process,” said Cutts.
According to data from
the latest Equifax National Consumer Credit Trends Report, first-mortgage
originations for subprime borrowers, consumers with an Equifax Risk Score of
620 or below, have shown steady growth from January to October 2015, with more
than 312,000 new mortgages originated, totaling $50.7 billion.
This marks a 28%
increase in the number of first mortgage originations and a 45% increase in the
total balances from the same time a year ago.
Meanwhile, the report
said the industry is also witnessing an increase in subprime activity within
the home equity market.
The total balance of
home equity installment loans originated for subprime borrowers increased to
more than $1.4 billion, a year-over-year increase of 32.7%, the report
stated. Total credit limits on home equity lines of credit (HELOCs) also
reached $608 billion, a year-over-year rise of 6.8%.
Cutts explained that
home equity installment loans are often more suitable for consumers with credit
issues, but the regulatory costs and underwriting burdens have typically made
them very expensive for lenders to originate.
Conversely, she said,
“HELOCs are generally more popular among consumers, but less accessible to
By Brena Swanson – To view the original article