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Tuesday, April 15, 2014

Lend Responsibly: Subprime Safety

Back in 2007, “subprime” became a dirty word.  In the years leading up to the recession, lenders became increasingly aggressive in their lending guidelines in the pursuit of a greater market share of a very profitable business.  Looking back it is obvious that subprime lending had gotten out of control like an alcoholic at an open bar.  There was no chance that the evening would end well.

But should subprime be forever banned from the housing finance market?  Of course not.  Even the alcoholic can be fun to have at a party as long as we don’t let him drink anything stronger than ginger ale.  There is a need for sober subprime lending in the housing market.  In fact, some responsible subprime lending has already returned.  Wisely, no one actually refers to it as “subprime,” since to many people that is still a dirty word.
There are mortgage products available today to homeowners with less than perfect credit, but they require strong income documentation and a sizable down payment.  As more private capital becomes confident in the mortgage market, we will see an expansion of responsible subprime lending.  But let's promise to keep it under control.