Tuesday, August 26, 2014

A: B, C, and D paper loans are types of sub-prime loans. There was a time when they were hard to find. Then when the housing market took off, so did the number of lenders offering them. Not so today. High default rates on sub-prime mortgages made to high-risk borrowers with bad credit or those who had filed for bankruptcy or had a property in foreclosure, now have many lenders either shunning these loans or tightening credit requirements on them.

As a rule, these loans have not met the borrower credit requirements of “A” or “A-” category conforming loans. Because mortgage lending is divided into various credit grades, several factors influence whether you receive, say, a “B” or “D” designation, including past credit history, documentation, and your debt-to-income ratio. The more serious a borrower’s problems, the lower the grade of the loan and the higher the rates and fees associated with the loan.

At one time, the outrageously high rates on these loans had dropped as more lenders began to offer them. Since the credit crunch spurred by the sub-prime mortgage crisis, rates on these paper loans have shot back up, reflecting in more stark terms their heightened risks.

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