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US subprime mortgages making a comeback

One of the biggest trending stories last month on CNNMoney was that subprime mortgages – or low-doc loans – were making a comeback.

 

Borrowers with bad credit were shut out of the mortgage market after the US housing bubble burst, but now a handful of small lenders are starting to offer subprime loans again.

Once synonymous with toxic, adjustable-rate mortgages – like the "exploding ARMs" that led many homeowners to lose their homes to foreclosure during the housing bust – subprime mortgages are once again being offered to borrowers who pose a higher credit risk.

This time the loans are much more costly.

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During the housing bubble, lenders were handing out subprime loans with cheap teaser rates and little or no down payments.

Now lenders are charging interest rates as high as 8 per cent to 10 per cent and requiring borrowers to make down payments of as much as 25 to 35 per cent.

US subprime mortgages making a comeback
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