TAMPA — It's the return of loans that caused the housing market to crash. Some housing experts are warning subprime mortgages have made a comeback under a different name. But other housing experts insist they’re safer and helpful for Americans with less than stellar credit scores.
Subprime mortgages are the focus of Hollywood blockbuster, The Big Short. They're also the pin that burst the housing bubble.
“We had thousands of people who were seeking our services in a total panic," said Sylvia Alvarez. She's a U.S Housing and Urban Development approved housing counselor. She runs the nonprofit Housing & Education Alliance in Tampa.
Sylvia Alvarez helped many of her clients from losing it all. They were using these second-chance loans designed for people with low credit scores. They were approved for loans they could not afford.
“It’s a scary feeling," said Alvarez.
The crippling recession landed her in their shoes. She too lost her home: not to bad loans but to economic hardship.
“You have this pain in the pit of your stomach and you don’t know how to get out of this," she said.
Now she's feeling deja vu about nonprime loans.
“We’ve actually been warning people about these loans from day one," she said.
She says more lenient loan standards are creeping back in, allowing borrowers with credit scores as low as 500 to get approved.
“It’s a bad loan, it’s a bad loan and I would never, ever recommend anyone to, whether they are an experienced person or not, to take them," she said.
Kyle Sasser is a realtor. His Reddit post warning folks about the dangers nonprime loans could lead to is trending. But he is cautiously optimistic this isn't exactly the same as so called NINJA lending.
“Which were no income, no jobs, no assets. You basically walked in, signed a paper and they would give you a loan," he said.
He says there’s a couple of key differences. First there’s no more ninja lending. If a borrower is higher risk then they’ll have a higher interest rate and down payment. Sometimes it's as high as 20%. But most importantly, he says, unlike subprime, nonprime loans are not qualified to be purchased by government-backed agencies like Fannie Mae and Freddie Mac.
Sasser says these loans can be a good thing for millions of Americans frozen out of the housing market.
“Like a fire, it can be a great tool in certain situations but if it gets out of hand it can cause a lot of damage and a lot of trouble," he said.
Sylvia, however, insists they aren’t worth it.
“They worry us, they really do," she says.
The topic of loans can be confusing for anyone. Click here to see a list of housing counselors approved by the U.S. Department of Housing and Urban Development. They can help guide you through your options for free.