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Impact of Financial Markets on Economic Stability and Growth: The Case of Sub-Prime Mortgage Lending - page 7 / 42

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1/23/2015

Jamshid Damooei, PhD

7

Are all the Borrowers High Risk?

One common assumption about the subprime mortgage crisis is that it revolves around borrowers with sketchy credit who couldn't have bought a home without paying punitively high interest rates.

An analysis for The Wall Street Journal of more than $2.5 trillion in subprime loans made since 2000 shows that as the number of subprime loans mushroomed, an increasing proportion of them went to people with credit scores high enough to often qualify for conventional loans with far better terms.

Many involved in the business view a credit score of 620 as a historic dividing line between borrowers who are unlikely to qualify for a conventional, or prime loan, and those who may be able to.

Above 620 score, borrowers may qualify for a conventional loan if other considerations are in their favor.

Above 720, most borrowers would expect to usually qualify for conventional loans, unless they are seeking to spend more than they can afford, or don't want to have to document their income or assets -- or are steered to a subprime product.

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