By Tabitha Jean Naylor, Staff Writer, Benzinga:
For home buyers who have a solid credit score and other favorable financials, getting approval for a home mortgage loan is relatively easy. For buyers who have less than attractive financials, however, life can get a little unpleasant. That is why the subprime market exists: to serve those customers.
From the lender’s point of view, approval for a home mortgage loan requires three main things: a sufficient down payment (usually at least 20 percent of the total loan), good credit and the resources to cover the closing costs associated with the buying process.
Subprime loans specialists, however, offer buyers more loan options. Larger, more traditional lenders have seen the profitability of the subprime market and have begun offering the more flexible loans as well.
Wells Fargo has long been a leading mortgage lender, but the decline of overall lending volume has recently sent Wells Fargo searching for opportunities to recoup the lost revenue. The company feels that it has recovered from the damage done during the first few years of the 2008 financial crisis and is ready to begin extending credit to buyers who are traditionally seen as more of a credit risk.
Not too long ago the banking behemoth bought out HSBC’s US credit cards, which many believed would, among other things, make Capital One one of the few – if not the only – major subprime creditor in the country. Company officials, however, say they’ve been hesitant to take on subprime borrowers. Capital One recognizes that subprime lending has not been a very successful venture for any length of time for any notable lending company.
JPMorgan Chase was once one of the premier home mortgage lenders in the subprime market and still is to a certain degree. When other banks were running headlong into major catastrophes after the housing bubble burst, JPMorgan Chase managed to avoid many of the issues that its competitors faced. The bank also craftily circumvented much of the anger and scrutiny that other banks took on the chin, and that played a significant role in their Wall Street downfall.
Citadel Servicing is billed as the largest subprime mortgage lender in the United States and has a history of taking on some of the riskiest credit applications ever. They have been known to approve borrowers with credit scores as low as 490 and have successfully managed to make it a profitable endeavor by creating innovative ways of lending. One such way is to repackage loans that have been made into bonds and sell them to investors.
Bank of America/Countrywide
Countrywide, now merged into the Bank of America empire, was once one of the country’s most successful subprime lenders. Countrywide improprieties that helped pave the way for the 2008 meltdown in 2008, however, have been an albatross for Bank of America, causing it to lose $50 billion. It is uncertain whether Bank of America will continue to be a leader in the industry … or even a player in it.
The subprime lending branch of General Motors, GM Financial, finances auto loans and leases. GM Financial specializes in loans to those who have credit scores less than 620. The company recently received a subpoena by the Department of Justice for documents relating to its operations going back as far as 2007. By Tabitha Jean Naylor, Staff Writer, Benzinga
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.