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Unconventional Mortgage Loans Making a Comeback

In 2018, unconventional mortgages hit their highest level since 2008 – but they were still only 3% of 2018’s loans compared to 39% in 2006.

NEW YORK – The number of unconventional mortgages last year reached the highest level since the 2008 crisis – but they still comprised less than 3% of loans made in all of 2018 compared with 39% in 2006 right before the housing bust.

Moreover, many of today’s loans are only slightly unconventional, says Inside Mortgage Finance’s Guy Cecala. He says most lenders are still required to make a good-faith effort to determine that a borrower has the “ability to repay.”

Lenders that underwrite unconventional mortgages also usually try to offset risk, and they do that by using a large down payment to counter the risk of a high debt-to-income ratio, limited documentation, or an interest-only loan.

Loans that trigger negative amortization no longer exist, and interest-only loans are being used once again as short-term loans for largely affluent people who are buying costly homes with a hefty down payment, notes Cecala.