Between January and October 2015, lenders originated 312,000 new first mortgages to subprime borrowers, totaling $50.7 billion. That marks a 28% jump in subprime mortgage originations and a 45% surge in total balances from the same time a year ago, according to Equifax.
Despite the precipitous rise, however, Equifax Chief Economist Amy Crews Cutts said that lenders have been more responsible than they have in the past.
“While there are many characteristics that define a subprime loan, such as the specific terms of the loan and the lender who issues it, credit standards are becoming more accommodating to meet market demand,” Crews Cutts said. “At the same time, lenders are focusing more attention on evaluating consumers’ ability to repay. This has led to a much larger reliance on third-party data verifications that enable lenders to more accurately vet subprime borrowers much earlier in the origination process.”
Home-equity loans to subprime borrowers also have seen a recent resurgence.
Home-equity installment loans originated to subprime borrowers jumped $1.4 billion annually between January and October 2015, marking a 32.7% increase. Furthermore, total credit limits on home-equity lines of credit (HELOCs) rose to $608 billion, a year-over-year increase of 6.8%.
"Home equity installment loans are often more suitable for consumers with credit issues, but the regulatory costs and underwriting burdens have typically made them very expensive for lenders to originate,” Crews Cutts said. “Conversely, HELOCs are generally more popular among consumers, but less accessible to subprime borrowers. Mortgage insurance is a viable alternative for home-equity loans that might be used as piggy-back financing for part of the down payment on the first mortgage, and may explain why we are not seeing similar proportionate increases in subprime home equity loans."