NEW YORK – July 7, 2015 – Nonbank lenders increasingly are giving home loans to borrowers who recently went through a foreclosure, short sale or bankruptcy – and sometimes approving applicants who went through foreclosure just months or even weeks earlier.

"Lenders are trying to carve out niches that play upon the fact that underwriting remains, by historic standards, very tight," says Inside Mortgage Finance publisher Guy Cecala. "That's always the way it starts out and then you keep loosening and loosening (lending requirements) – we're right at the beginning of that."

He predicts that mortgage originations will reach at least $5 billion this year for borrowers who are recently recovered from a major financial setback, up from $2 billion to $3 billion in 2014.

These mortgages often fall outside the Consumer Financial Protection Bureau's "qualified mortgage" definition and could expose lenders to future losses, but lenders contend that they verify applicants' incomes and credit reports, and ensure that previous credit blemishes were tied to a job loss or other extenuating circumstance.

While some lenders approve borrowers with subprime FICO scores as low as 500, in many cases, these borrowers had high credit scores before the negative event and still maintain good credit scores. These lenders generally charge interest rates ranging from 5 to 10 percent.

Source: Wall Street Journal (06/25/15) P. C1; Andriotis, AnnaMaria

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