Carrington Mortgage Services has launched a new line of subprime mortgages targeting the 100 million U.S. consumers with less than perfect credit. While Carrington already offers subprime loans via government channels, such as the FHA and VA, these new additions are not backed by Fannie Mae or Freddie Mac. They appear, instead, to be proprietary loan solutions offered by Carrington itself.
Here’s what the mortgage looks like: Borrowers can have FICO scores as low as 500 and loan amounts as high as $1.5 million. Recent credit events are okay, and bank statements are acceptable to verify income. Cash-out refinancing can be as high as $500,000. Carrington is advertising these loans as the ideal solution for those who have low credit scores, high debt-to-income ratios, a recent credit event, or who are self-employed.
What Carrington Mortgage is Saying
The company has said that these loans are “non-agency,” meaning they do not comply with the underwriting guidelines of Fannie May or Freddie Mac. Additionally, Carrington is offering jumbo loan amounts, which exceed the current conforming loan limit of $453,100. This is meant as a way to increase borrower flexibility over standard loan options. So, why should we care? Subprime mortgages were a major catalyst in the American financial crisis in the mid-2000s. Just a decade after the biggest financial crisis in U.S. history, the company has begun to offer these predatory loans. However, this isn’t the whole story.
History Review and Personalized Advice
One might argue that underwriting issues weren’t the only factor to lead to the housing crisis. Rather, the risk was layered. A multitude of factors, such as a low credit score, high debt-to-income ratio, no or low down payment, and limited documentation, combined to create a high-risk home loan. Conversely, a borrower with a very low credit score but a large amount of assets and down payment, along with a stable income, could be a suitable candidate for this new subprime loan. Low credit scores are incredibly common, and it could be that Carrington is attempting to offer a solution to those wrecked by the financial crisis and attempting to rebuild.
That said, if you have a low credit score and are in search of a mortgage, do your research. Don’t side with Carrington just because they will accept your low credit score; shop around and see what else you can find.