With very rare exception, subprime mortgage lending no longer exists in 2014, according to CNN Money. Following the mortgage crisis of 2007, federal regulators cracked down on lenders, and banks began granting mortgages only to well-qualified buyers. However, some small lenders such as Skyline Financial, of Calabasas, Calif., began granting loans to less-qualified borrowers in early 2014. Wells Fargo Bank also began approving similar loans at about that time.
The subprime mortgage of 2014 bears little resemblance to the low-interest, adjustable-rate mortgages offered by subprime lenders at the height of the housing bubble in 2004 through 2006, CNN Money explains. The loans offered to less-qualified buyers now carry interest rates of 8 to 10 percent and require a down payment of up to 25 to 35 percent. Nevertheless, these loans offer borrowers with poor credit but adequate financial means the opportunity to enter the housing market for the first time since 2008.
According to CNN Money, the Federal Housing Authority supports loans to less-qualified buyers with a lower down payment, often as little as 5 percent of the total purchase price. However, the agency requires buyers to carry mortgage insurance, usually for the life of the loan. As of January 2013, the premium for insurance increased to 1.3 percent of the outstanding loan balance for borrowers who put down 5 percent or more, and 1.35 percent of the balance for those who put down less than 5 percent. Jumbo loans of more than $625,000 require a premium of 5 percent. The agency also tightened restrictions on borrowers with a FICO credit score of under 620 and a debt-to-income ratio greater than 43 percent, requiring banks to underwrite such loans manually and document why they were approved.