…Today’s high-risk lenders differ from those during the housing boom in key ways. These lenders say the new subprime mortgages are actually old school — the kind of loans made in the 1980s and 1990s. In other words, a borrower’s collateral matters, down payments matter, income and ability to pay matter.
Subprime lenders care because they are holding the loans on their books rather than selling them to investors. They hope a private securities market for subprime loans, also destroyed in the meltdown, will reemerge soon.
For now, the subprime and alt-A business remains small, maybe $8 billion total, estimated Inside Mortgage Finance Editor Guy D. Cecala. That’s less than half of 1% of the $1.8 trillion in U.S. home loans last year.
Among those hoping to reverse the trend is the Polands’ lender, Citadel Servicing Corp. of Orange County. Chief Executive Daniel L. Perl said he has tested the water by making a few dozen subprime loans since late 2011, mostly with his own money rather than investment capital…
Yes, jp, and also these loans are kept in the lender’s portfolio. These types of loans have always been around and used to be referred to as “C paper.” They are nothing but short-term fixes for people that need them for purchase money, whether to enable a bidder to present a cashier’s check on the courthouse steps, or, as these buyers did, buy a personal residence with leverage while having bad credit, clean it up and improve it a little and have it re-appraised a few months down the road, where, hopefully, as they are rebuilding their credit, they will be able to obtain a mortgage on better terms (with Citadel, they had to put 35% down [borrowed from their IRA’s] and are paying a 10.9% interest rate).
Since there is no GSE involved, the gubment won’t be bailing out this mortgage bank if there is a default … in this case, Citadel of Orange County.
Back in the eighties, there were SEVERAL small lenders in town that specialized in C/D paper and each had a passel of investors who were only too happy to invest with them for 15%++ dividends. Some of these lenders no doubt ended up with properties, but in that era, they were happy about it, since the lender’s principal was ALWAYS a licensed RE broker who had numerous contacts in the trade and thus was able to foreclose upon and market the properties they took back himself in a timely manner.
In this article, I wonder why the Poland’s chose Temecula on the basis of appreciation needed to get out of their bridge loan within the year, since there are undoubtedly areas in SD, LA and Orange Counties which will appraise faster and higher than Temecula in the coming year. (This foreclosed-upon couple took this loan out strictly on the basis of believing what they buy would appreciate fast and they could get out their “subprime mtg” within the year).
The only reason I can think of why they would choose Temecula on the basis of appreciation is the lower price point and thus the lower amount of downpayment required (since they had to put 35% down).
