Are Toxic Mortgages Coming Back?

Lenders wrote $34 billion worth of unconventional mortgages in the first three quarters of last year – up 24 percent from the corresponding months of 2017, reports Inside Mortgage Finance.

The loans – which may be outsized relative to a borrower’s income, structured as interest-only, or last longer than 30 years – don’t qualify for Fannie Mae or Freddie Mac underwriting, so the lender might plan to keep the loans or sell them outside the usual system.

Some regulators and consumer advocates worry that the growth in these types of mortgages could reignite risks for the housing market, however. A rise in toxic mortgages contributed to the housing meltdown during the latest recession.

Meanwhile, traditional lenders are turning to borrowers with harder-to-document creditworthiness as a new source of revenue. Nearly half of lenders that participated in a recent survey said they intend to get into this business, according to Inside Mortgage Finance.

Source: Wall Street Journal (01/23/19)



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