Investment In ‘Non-Prime’ Mortgages Is A Current Trend

10 September 2015 – Expansión

Investors seeking profitability at all costs appear willing to promote a new boom of the most risky, mortgage-backed securities, while the institutions are accepting applications from homebuyers who do not meet the requirements introduced following the financial crisis.

Indeed, now, the label of “subprime mortgages” seems to have disappeared. Right now the Angel Oak Capital fund is valuing a bond offering of “non-prime mortgages”, a term used by funds to describe mortgages that do not comply with the requirements of the authorities. In August, Lone Star Funds completed a deal worth $72 million.

The mortgage-backed securities of lower quality aroused all kinds of criticism for the part they played in the real estate outbreak of 2008.

However, investors who support any initiative to encourage market activity believe that things are different this time.

The big banks are granting loans primarily to customers who offer more guarantees, as regulators exclude buyers representing a risk, explains Brad Friedlander, partner of Angel Oak Capital.

However, in his opinion, “there is no reason why they can not somehow consider giving a credit. Institutions still have a restrictive attitude, but I think that with time things will change. ”

After the financial crisis, the government introduced a policy aimed at increasing the requirements for granting loans.

The issuance of mortgage-backed securities that are not backed by a guarantee from agencies like Fannie Mae and Freddie Mac, has decreased from 500 billion the year before the crisis to 10 billion last year.

One way the banks and other entities can meet the new requirements is issuing a “qualified mortgage”, in which the applicants must have a debt-to-income ratio of 43% maximum.

Original story: Expansión

Translation: Lee La