16th February 2019

Unconventional loans surge in 2018: Housing trouble ahead?

Homebuyers are increasingly opting for nontraditional mortgages – Opens a New Window.which helped precipitate the housing crisis about one decade ago – potentially foreshadowing trouble as high prices continue to weigh on housing affordability.

Throughout the first three quarters of last year, unconventional mortgages – those that don’t require borrowers to show typical income or other asset verifying documentation – rose 24 percent to $34 billion, according to data from Inside Mortgage Finance, as reported by The Wall Street Journal. While unconventional mortgages accounted for just 3 percent of overall originations during that period – traditional mortgage loans declined.

Unconventional mortgages are intended to help people with unusual circumstances, such as no consistent salary, get a home loan. However, they are considered more risky because they require borrowers to show less, or even no, documentation – which can lead to deceitful practices. These loans can allow borrowers or lenders to overstate assets to help secure a larger mortgage. A scenario whereby borrowers secured larger mortgages than their means allowed for partially precipitated the 2007 financial crisis

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