Unconventional mortgages increased to the highest level since the mortgage meltdown in 2008.  Unconventional mortgages include subprime loans, which are made to borrowers with blemished credit. Does that mean we’re headed back to the bad old days that led to the housing meltdown? Probably not.

While the number of unconventional mortgages has grown, they were still less than 3% of loans made in 2018, compared with 39% in 2006, right before the housing bust began.  Most of the bad-apple loans that contributed to the housing crisis are long gone. Loans that resulted in negative amortization have disappeared.

Lenders may be more willing to loosen underwriting to drum up business, especially if it would distinguish them from competitors, says Guy Cecala, publisher of Inside Mortgage Finance. But in the worst case, only a handful of lenders or investors will fail, he says.

To see the complete article by Patricia Mertz Esswein see Kiplinger’s November 2019 issue.

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