Over the last year nonprime or non-QM loans have slowly been making a return to the market. You may be thinking, “Isn’t that what caused the crash in 2008?” Yes, in part. But non-QM loans now adhere to stricter standards than they did years ago.
According to the CFPB, “You can originate any mortgage (whether or not it is a QM) as long as you make a reasonable, good-faith determination that the consumer is able to repay the loan based on common underwriting factors.”
So Why All the Negativity Around Non-Prime Loans?
If issuing these loans is completely legal, and the CFPB is okay with the practice, then what is the problem?
Today, nonprime loans are safer than before. Some of the strict standards these loans must follow include, but are not limited to:
- Buyer must provide a significant down payment
- Loan must adhere to ability-to-repay standards implemented by the Dodd-Frank Act
Nonprime loans may become more important to the economy in the coming years, bringing more money into the housing industry.
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