http://www.fcic.gov/hearings/pdfs/2010-0407-Bitner.pdf Borrowers with no down payment are no more risky than those with down payment??? While the advent of securitization made it possible for subprime lending to develop, several events, beginning in 2000, promoted the expansion of this industry segment. While each one was independently significant, the collective impact served as a major catalyst... [more]
http://www.fcic.gov/hearings/pdfs/2010-0407-Bitner.pdf
Borrowers with no down payment are no more risky than those with down payment???
While the advent of securitization made it possible for subprime lending to
develop, several events, beginning in 2000, promoted the expansion of this
industry segment. While each one was independently significant, the collective
impact served as a major catalyst for growth.
First, Standard and Poor’s (S & P) concluded the piggyback mortgage
(where the customer took out a simultaneous second loan in lieu of a down
payment) was no more likely to default than a single loan. The other agencies took
the same position shortly thereafter. While the event went largely unnoticed
outside of the industry, its impact was important.
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Response by Riversider
almost 16 years ago
Posts: 13572
Member since: Apr 2009
The practice of risk management is dictated by the “c’s” of underwriting.
These refer to a borrower’s capacity to pay, credit history and character. While all
three are important, nothing is more critical in subprime lending than the fourth
“c”, collateral. Given that a typical subprime mortgage had questionable credit
and/or spotty income, accurately determining property value became even more
critical for these types of transaction. Occasionally, it was the only “c” that we as
lenders could “hand our hat on” when trying to approve a loan application.
The practice of risk management is dictated by the “c’s” of underwriting.
These refer to a borrower’s capacity to pay, credit history and character. While all
three are important, nothing is more critical in subprime lending than the fourth
“c”, collateral. Given that a typical subprime mortgage had questionable credit
and/or spotty income, accurately determining property value became even more
critical for these types of transaction. Occasionally, it was the only “c” that we as
lenders could “hand our hat on” when trying to approve a loan application.