Due to recent changes in how lenders evaluate applicants, the subprime market is going through a big change. Why is the subprime market in particular being aimed at? Maybe this is because people in the subprime market have more trouble paying back their loans than people in other markets.
People who need a subprime loan usually have a bad credit record, a spotty credit record, or no credit record at all. No matter how you look at it, anyone who lends money to someone like that is taking a risk. Sadly, this risk often comes true through defaults, bankruptcies, and foreclosures.
By making the rules more specific, the number of people who can apply goes down. The guidelines are just a list of rules that are used to figure out who can get a loan and who can't. So, if the rules get stricter, the risk for the lenders goes down, and the number of qualified applicants goes down, too. Basically, the people who are the biggest risks won't be able to get a loan anymore.
In reality, the real people who give the money for subprime loans are trying to reduce the risk of their mortgage portfolio while making more money. If the rules aren't changed quickly enough, lenders who are in a tight spot might have to shut down. When there are fewer lenders, there is less competition, which could mean that the terms for the borrowers are not as good.
Guidelines usually look at the borrower's credit score, the amount of the down payment, the borrower's history with credit accounts, and the borrower's work history. So far, all of these have been flexible and not too wild. But times are changing, and people who don't know how to handle their money will soon be punished by the mortgage industry.
A paper loan with a grade of "A" is given to someone with the best credit score. It has the best terms, including the lowest interest rates, the fewest points, and the fewest other conditions. Some lending agencies are going to make changes that will make it easier for some people to get A loans and harder for others to get subprime loans.
