Question:

What is a sub-prime lender and they do?

Answer:

Every lender who charges higher interest rates than the rates offered by conventional lenders is a sub-prime lender.

Sub-prime lenders are ones who offer loans to borrowers with weaker credit and certain loan characteristics and who don't meet Fannie Mae and Freddie Mac criteria.

For example, a bad credit borrower will be one that has less than 620 FICO, and needs a loan with high LTV. Sub-prime lenders would consider the borrower eligible for higher rates - 2-3% higher than conventional loans. The highest costs of sub-prime home loans are justified by the higher risk - both for borrowers and lenders.

Sub-prime lending, also called B-paper financing, is more expensive due to the greater risk associated with those loans - combined poor credit history, lower income and high interest rates.

Sub-prime Lending Sometimes Targets Minorities

Predatory lending sometimes targets lower income and/or minority borrowers who sometimes also happen to be less educated and have hard time understanding some more sophisticated mortgage products and features. Some of those loans may carry expensive prepayment penalties and other hidden terms that cause borrowers to default and ultimately lead to foreclosure.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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