During the recent real estate boom, there was a significant presence of subprime lending available to homebuyers in the 8-10% interest range. Today, with tightened criteria for underwriting, the buyer who doesn't qualify for traditional financing doesn't seem to have another option, since institutionalized subprime lending doesn't appear to be available. There is plenty of high interest "hard money" available, but nothing that is a good fit for a buyer who has good income, and cannot qualify due to credit blemishes. Most of the buyers I run into are willing to put 10-15% down, and are good candidates for subprime lending. Is anyone aware of the existence of this "subprime" lending for owner occupants?
I don't know if you were just looking to start a conversation, but besides what you're talking about, one could say that FHA is the new "subprime," otherwise, I think that private money or hard money lenders still want to mitigate risk, and the only way to do that is to either lend at conservative LTVs and require more down payment from a borrower, or to charge higher interest rates.
With that said, though, I know of a couple aggressive lenders in CA who will lend on O/O SFRs and I think their rates and down payment requirements are bearable. For example, I just got approval on a 80 LTV O/o SFR @ 4.25 pts (mine included) with 12% int. rate. It was a good enough deal that they were willing to even do a 80/10/10. Who does that in hard $$??? No one that I had seen before. But this lender is very aggressive, and that's not the standard, but they are open to making exceptions.
And I do understand where your coming from and what you're saying. Only thing even close to subprime is what Athas and Citadel Servicing Company are doing, but again, they are mitigating risk by not going higher than 80 LTV, let's say 75 LTV and pricing directly off their rate sheets.
I know this doesn't help anything, but I thought I would throw my .02 out there.
Thank you, Jared!
FHA is likely the closest thing to subprime, although the qualifying criteria prevents most "credit blemished" borrowers from qualifying. A large gap exists between hard money and FHA (both on the down payment requirement and the interest rate) and that creates a huge opportunity for financing in that gap. There is a group of borrowers out there who have good income, and an above average down payment capability, yet they are not interested in Hard Money, simply because the payment doesn't make sense. Funding at 8-10% with a down payment requirement that is between FHA and Hard Money makes sense for that buyer. With what we deal with alone, I could place 25 million a year of that kind of money, and that is just a small sliver of the market here in Phoenix.
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