How Mortgage and Other Lenders are Helping More People Buy Houses

BY Rachel Cagle
Featured image for “How Mortgage and Other Lenders are Helping More People Buy Houses”

"They were blamed for the biggest financial disaster in a century. Subprime mortgages – home loans to borrowers with sketchy credit who put little to no skin in the game. Following the epic housing crash, they disappeared, due to strong, new regulation, and zero demand from investors who were badly burned. Barely a decade later, they're coming back with a new name — nonprime — and, so far, some new standards, reports CNBC."

"Mortgage lenders have begun offering loans to borrowers, "with less-​than-​perfect credit," some, such as Carrington Mortgage Services, allowing its borrowers to have FICO credit scores as low as 500. All loans, however, will not be the same for all borrowers. If a borrower is higher risk, a higher down payment will be required, and the interest rate will likely be higher."

"Big banks are also getting in the game, both investing in the securities and funding the lenders, according to Rick Sharga, executive vice president of Carrington Mortgage Holdings."

"As the economy improves, and rents continue to rise, more Americans are trying to become homeowners, but the scars of the Great Recession still stand in the way. One-​fifth of consumers today still have very low credit scores, often disqualifying them from obtaining a mortgage in today's tight lending market."

"Last summer, Fannie Mae announced it would relax its lending standards for prime loans, allowing borrowers with higher debt and lower credit scores to obtain loans without additional risk overlays, such as large down payments and a year's worth of cash reserves."

"Fannie Mae raised its debt-​to-​income (DTI) limit from 45% to 50 percent. DTI is the amount of total debt a borrower can have compared to his or her income. As a result, demand from buyers with higher debt exceeded all expectations. The share of high DTI loans jumped from 6% in January 2017 to nearly 20% by the end of February 2018, according to a study by the Urban Institute."

"The outsized demand from borrowers with more debt as well as demand for nonprime mortgages in the private sector show just how many borrowers today would like to become homeowners but are frozen out of the mortgage market."

"Millennials, the largest homebuying cohort today, have much higher levels of student debt than previous generations." Approximately 29.4% of House Shoppers are millennials between the ages of 25 and 34, according to AudienceSCAN.

"In addition, credit tightened up dramatically. In fact, between 2009 and 2015, tighter credit accounted for just more than six million "missing" loans, according to research by Laurie Goodman at the Urban Institute. These are mortgages that would have been granted under more normal historical underwriting standards."

According to AudienceSCAN, House Shoppers are 80% more likely than other adults to be new to the mortgaging market. As such, 52.2% of these shoppers make it a point to shop where salespeople are helpful and friendly.

"The rebirth of the nonprime market is focused on these missing mortgages. The hope is that the industry will also focus on better standards of underwriting and not take risk to the levels it once did, levels that resulted in disaster."

So, how can these consumers be targeted? About 48.6% of House Shoppers, according to AudienceSCAN, get most of there local news from TV, which lead to 68.5% of these shoppers to take action after seeing a TV ad within the past year. Also within the last 12 months, these shoppers have been 25% more likely than other adults to take action after watching pre-​roll video ads.

AudienceSCAN data is available for your applications and dashboards through the SalesFuel API. Media companies and agencies can access AudienceSCAN data through the AudienceSCAN Reports in AdMall.