The tide appears to be turning, however, as
In the publication, KBRA presents and discusses the defining characteristics, strengths and weaknesses of five primary sub-categories of expanded or non-prime origination including Expanded Prime, Prior Credit Event, Alternative Documentation, Business Purpose, and Foreign National.
Among the broader discussion, KBRA notes that originations of such non-prime loans under sound compliance with the Ability-To-Repay (ATR) rules are expected to exhibit better performance than 2005-2007 vintage loans with similar credit parameters due to strengthened underwriting. Loans to borrowers with recent prior credit events will, in some cases, exhibit increased default risk relative to those which lack similar credit disposition activity, even where credit scores may indicate little differentiation. KBRA notes that particular attention should be paid to differences between non-prime and non-QM, as the two designations are different and are not necessarily linked. However, KBRA notes that where there is overlap between the two, the risk of higher loss severities can increase significantly due to greater potential likelihood of a borrower raising a claim that the originator did not appropriately consider the borrower’s ability to repay, and the greater potential success rates of such claims.
Additional detail is available in our full report.
KBRA is registered with the
Senior Managing Director
Kristymarie Cariello, 646-731-2494
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