Stripped Bare - Beneath the Feel Good Veneer of Subprime Lending

Chapter 9 - Making the Grade

The subprime lending industry graded potential borrowers with one of four grades.  Borrowers were either “A” borrowers, “B” borrowers, “C” borrowers, or “D” borrowers, though there were minor variations from subprime lender to subprime lender in this grading system.  “A-” or “C-” grades were also a possibility, and these grades were dependent upon whether the borrower had “rolling” 30 day late payments on their most recent twelve (12) month mortgage payment history.  No matter what your grade was though, the subprime lender probably had a “deal” for you.

A subprime borrower who received an “A” grade had no thirty (30) day late payments in the past twelve (12) months of their mortgage payment history.  “A” grades could also carry a loftier name such as “Premier Plus,” or other feel good title.  Some subprime lenders also gave “A” grades to borrowers who did have one thirty (30) day late mortgage payment in the past twelve (12) months, though the interest charged on the loan would have reflected the fact that the borrower paid one mortgage payment thirty (30) days late.  A subprime borrower who had received an “A-” grade has had two (2) thirty (30) day late payments in the past twelve (12) months of their mortgage payment history, which could include rolling thirty (30) day late payments mentioned above.

Rolling late payments, as defined by the subprime lending industry, were simply mortgage payments made thirty (30) days late a number of months in a row.  For example, if a borrower had made their mortgage payment thirty (30) days late for up to six (6) consecutive months, it only counted as one (1) thirty (30) day late payment when it came time to be graded.

A subprime borrower who had received a “B” grade had one (1) sixty (60) day late payment on their mortgage in the past twelve (12) months.  A “B” grade was also assigned to subprime borrowers who had made three (3) thirty (30) day late mortgage payments in the past twelve (12) months.  For example, if a subprime borrower made their mortgage payment thirty (30) days late for the month of January, and then paid the mortgage on time for the months of February and March, and then made the April mortgage payment thirty (30) days late, but once again paid the May and June mortgage payments on time, and then paid the July payment thirty (30) days late, would also receive a “B” grade.

Posted by on 04/04 at 06:40 AM

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