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Was subprime lending all bad?

ASK THIS | September 13, 2007

A Harvard professor of housing studies points out that new mortgage products opened the doors to homeownership for many who have not defaulted.

By Nicolas Retsinas

Q. Was subprime lending all bad?

Q. To what extent, did new mortgage products open the door to homeownership, especially among low and moderate income families?

Notwithstanding, a steep increase in delinquencies and defaults, most subprime borrowers continue to be current and many have refinanced to fixed-rate mortgage products.

Here is an excerpt from a recent report – Understanding Mortgage Markets - on the Joint Center for Housing Studies at Harvard University’s Web site:

“The last two decades have witnessed a revolution in mortgage finance. As recently as 1990, lenders offered relatively few mortgage products.

"The products that were offered had relatively uniform interest rates and served borrowers meeting stringent credit standards, loan-to-value and debt-to-income ratios. Not so today, as risk-based pricing has changed underwriting standards and origination volumes have soared, diverse mortgage products have flourished in both the traditional prime and growing non-prime markets, and a broker-dominated mortgage delivery system has emerged. The rise in non-prime lending and the proliferation of alternative mortgage products have expanded access to credit to millions of homebuyers who otherwise would not have qualified for mortgages.

“Additionally, homeowners can now tap their home equity to meet a range of financial needs.”

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