The nonprime sector is on pace to make about $10 billion this year, according to the Financial Times. While that’s only a small fraction of the total mortgage industry’s expected $1.6 trillion for the year, the nonprime slice of the pie is growing rapidly.
Non-prime securities are also making a comeback. Ratings agency Fitch expects to see about $3 billion in issuance of non-prime mortgage-backed securities this year. There was only $1 billion in issuance the previous 18 months, the Financial Times reported.
That rapid growth is partially because of new regulatory policy, according to the Financial Times. Under President Donald Trump, federal agencies have been ordered to review most of the regulations that were put into place in the aftermath of the financial crisis. And in June, the Treasury Department released a report that tight mortgage underwriting standards were at least partly to blame for the “anemic” growth of the housing market, the Financial Times reported.
While some financial observers have expressed apprehension about the return of nonprime, lenders point out that today’s nonprime is very unlike the subprime loans of the past – there are more controls, and borrowers must demonstrate they have the ability to repay the loan.
“Making credit available to borrowers who are subprime is national policy and it is an important part of economic growth,” Julian Hebron, head of sales at RPM Mortgage, told the Financial Times.
Non-prime an asset for originators’ toolbag
Citadel launches new one-month bank statement program
While it’s still a tiny fraction of the total mortgage market, non-prime lending continues to come back in a big way.