Sub Prime Mortgage Leads

Subprime lending (near-prime, non-prime, or second chance lending) is a financial term that was popularized by the media during the "credit crunch" of 2007 and involves financial institutions lending in ways which do not meet "prime" standards to an extent which puts the loans into the riskiest category of consumer loans typically sold in the secondary market. These standards refer to the size of the loan, "traditional" or "nontraditional" structure of the loan, borrower credit rating, ratio of borrower debt to income or assets, ratio of loan to value or collateral, documentation provided on those loans which do not meet Fannie Mae or Freddie Mac underwriting guidelines for prime mortgages (are "non-conforming"). Although there is no single, standard definition, in the US subprime loans are usually classified as those where the borrower has a FICO score below 640. Subprime lending encompasses a variety of credit types, including mortgages, auto loans, and credit cards.

Subprime could also refer to a security for which a return above the "prime" rate is adhered, also known as C-paper.

Subprime borrowers show data on their credit reports associated with higher default rates, including limited debt experience, excessive debt, a history of missed payments, failures to pay debts, and recorded bankruptcies.

The Wall Street Journal reported in 2006 that 61 percent of all borrowers receiving subprime mortgages had credit scores high enough to qualify for prime conventional loans.

Proponents of subprime lending maintain that the practice extends credit to people who would otherwise not have access to the credit market.

Like other subprime loans, subprime mortgages are defined by the financial and credit profile of the consumers to which they are marketed. According to the U.S. Department of Treasury guidelines issued in 2001, "Subprime borrowers typically have weakened credit histories that include payment delinquencies, and possibly more severe problems such as charge-offs, judgments, and bankruptcies. They may also display reduced repayment capacity as measured by credit scores, debt-to-income ratios, or other criteria that may encompass borrowers with incomplete credit histories."

Subprime mortgage loans are riskier loans in that they are made to borrowers unable to qualify under traditional, more stringent criteria due to a limited or blemished credit history. Subprime borrowers are generally defined as individuals with limited income or having FICO credit scores below 620 on a scale that ranges from 300 to 850. Subprime mortgage loans have a much higher rate of default than prime mortgage loans and are priced based on the risk assumed by the lender.

Although most home loans do not fall into this category, subprime mortgages proliferated in the early part of the 21st Century. About 21 percent of all mort­gage originations from 2004 through 2006 were subprime, up from 9 percent from 1996 through 2004, says John Lonski, chief economist for Moody's In­vestors Service. Subprime mortgages totaled $600 billion in 2006, accounting for about one-fifth of the U.S. home loan market.

As with other types of mortgage, various special loan features are available with subprime mortgages, including:

• interest-only payments, which allow borrowers to pay only interest for a period of time (typically 5–10 years);
• "pay option" loans, usually with adjustable rates, for which borrowers choose their monthly payment (full payment, interest only, or a minimum payment which may be lower than the payment required to reduce the balance of the loan);
• and so-called "hybrid" mortgages with initial fixed rates that sooner or later convert to adjustable rates.

This last class of mortgages has grown particularly popular among subprime lenders since the 1990s. Common subprime hybrids include the "2-28 loan", which offers a low initial interest rate that stays fixed for two years after which the loan resets to a higher adjustable rate for the remaining life of the loan, in this case 28 years. The new interest rate is typically set at some margin over an index, for example, 5% over a 12-month LIBOR. Variations on the "2-28" include the "3-27" and the "5-25".

There are several benefits to focusing on subprime mortgage leads. One good reason for generating subprime mortgage leads is that the borrowers are less likely to shop your offer. Also, the commissions on subprime mortgage loans can be quite lucrative.

I’ve found that one of the best ways to generate subprime mortgage leads is by direct mail.

So let’s look at the steps involved in putting together a profitable direct mail campaign to generate subprime mortgage leads.

Prospect List

There are two sources I recommend for obtaining your mailing lists – list companies and credit agencies.

Here are two sample criteria to request from list companies in order to target subprime borrowers:

1) Get a list of home owners who have just filed a chapter 13 bankruptcy. Do a cash out refinance and pay off their chapter 13 bankruptcy.

2) Get a list of people who originated a loan with a subprime lender at least 2 to 5 years ago. Their pre payment penalty will be expired and they will be ready to refinance.

Here are two list ideas when working with a credit agency to obtain your subprime mortgage lead mailing list:

1) Find homeowners who need help with their finances. Get a list of homeowners who are currently 30 days late on their first mortgage loan. Or, get a list of home owners who have a certain number of consumer lates 30, 60, or 90 in the past 6 to 12 months.

2) Select borrowers with a low credit score. You select the credit score range based on your loan programs.

Combine these with other criteria to better target your prospects. Here are two more list criteria ideas:

1) Homeowners with $15K to $50K outstanding revolving debt
2) Properties that have an LTV of 80% or less

Mail Piece

Here are a few important basics you’ll need to incorporate into your mail piece:

Personalized content

* Give sample payments.
* Tell them how much money the new loan will save then monthly and over the next 5 years.

Tell them about your unique selling propositions (USP’s)

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