Just as we’re looking at peeling back regulations like Dodd-Frank with last weeks CHOICE Act vote, a recent op-ed asked the provoking question “Does anyone remember how to make a subprime mortgage?” Of course, those in the mortgage industry remember well. Though they have dwindled in recent years, due to many blaming the 2008 crash in part on the mortgages, thoughts of honing in on an untapped market are gaining popularity again. The Wall Street Journal (WSJ) reported 25-year-old FundLoans Account Executive Brandon Boyd is teaching mortgage brokers how to get back into it.
Before the crisis, most brokers worked for banks and independent lenders, some faking loan applications and steering their borrowers into debt they could not handle. Now that technology like Quicken Loan’s Rocket Mortgage has come into play, consumers are getting an alternative to the traditional broker.
On the other hand, lenders have reported borrowers, such as those with good credit scores who likely are self-employed and fail to have proper documentation, are an untapped market. Leaving loan decisions to typical “prime loan” specifications through automation could mean losing a good borrower. If Boyd is successful in recruiting brokers, WSJ reports that the market potential for both types of loans could reach $200 billion annually.
“Small and midsize independent lenders want the brokers back. Nonbank lenders that typically cater to riskier borrowers say they need brokers to fan out across the country and arrange mortgages to people with lower credit scores, or who can’t prove their income through a typical tax return,” WSJ reported.
Though the popularity of subprime mortgages would bring more borrowers to the market, some worry it will increase the chance of loan defaults.