A little more than a decade ago the economy collapsed, and at the center of that collapse was the subprime mortgage. These loans, often made to borrowers with bad credit, no job, and no income turned into a systemic risk that eventually sent the world into its worst economic crisis since The Great Depression.
Fast-forward to 2018, and according to a report from CNBC, the subprime mortgage is back–this time with a new name: nonprime. Of course, that’s just a change in brand. Like subprime mortgages, nonprime mortgages are offered to customers with credit scores as low as 500.
Of course, having bad credit is not the same as being a bad–or even unreliable–person. Borrowers end up with less-than-prime credit scores for all sorts of reasons, some of which are beyond their control. Though credit agencies have made recent changes to the way they factor medical debt into a credit score, more than half of all the debt that appears on credit reports in the United States stems from medical expenses. Research has consistently shown that people of color are disproportionately targeted for predatory loans and other risky financial products that make bad credit nearly inevitable. That’s one reason why more than 20% of African-American borrowers have credit scores of less than 620, compared to just over 5% of non-Hispanic white borrowers. One fifth of all consumers have low credit scores, in part because of the lingering impact of the Great Recession.
In other words, whether you call them nonprime or subprime, there is a place in the economy for mortgage loans targeted at borrowers with less-than-perfect credit scores. Or, at least there is if you care about a housing market that doesn’t perpetuate multi-generational economic insecurity. However, as The Great Recession taught us (or should have taught us), there is also a place for nonprime/subprime mortgages at the center of an economic disaster.
A nonprime/subprime mortgage is just a tool. And, like any tool, it can be used for good and bad. My own parents certainly would have benefitted from a properly regulated subprime mortgage after my dad broke his back and my mom struggled to support us with two jobs. Instead, we bounced from my grandparents’ house to a tent to a series of apartments. Once he was healthy enough to work, my dad and mom both held steady jobs, consistently working their way up the pay scale–but the lingering effects of medical bills and hard times made getting a mortgage almost impossible.
The problem isn’t the mere existence of subprime mortgages. The problem is our tendency to let greed turn a good idea into a really bad one. No matter what you call them, if subprime/nonprime mortgages are an inevitable part of the housing market, they need to remain a tightly regulated tool designed to give otherwise reliable borrowers with low credit scores a second, or in some instances, a first chance–and not a way for Wall Street to engage (again) in a temporary and ultimately destructive cash grab.