“Subprime” has been a dirty word since the freewheeling mortgage lending spree that ultimately brought down the economy and propelled millions of homeowners into foreclosure.
The term simply refers to loans made to borrowers who do not fit the standards for a prime mortgage loan, as defined by Fannie Mae and Freddie Mac. But after the housing market crash, subprime became almost synonymous in some people’s minds with the insidious loan products of the previous decade — those that didn’t require proof of income, or with negative amortization, or that allowed the borrower to decide how much to pay each month.
It is not surprising that the lenders who are now dealing in the subprime area are choosing different terminology to describe their products. The preferred adjectives these days are nonprime, non-QM (for qualifying mortgage) or “alternative.”
“We’re not really running from the word subprime,” said Tom Hutchens, the senior vice president for sales and marketing at Angel Oak Mortgage Solutions in Atlanta. “It’s really just educating people about what the 2015 subprime is, no matter what their predisposition to the word is.”
The kinds of nonqualified loans Angel Oak and many other nonbank lenders are now offering look more like the subprime products of the late 1990s, Mr. Hutchens said. “Then, each layer of credit risk was mitigated with something else,” he said. “If you had some type of credit issue, for example, you had to put another 5 percent down or your rate was slightly higher.”