Prime vs Subprime Borrowers

All this talk about subprime mortgages. What exactly defines what is subprime and what is not. Also say a borrower is making good money but he has a mortgage that is astromonical. Being that his likelyhood of missing a payment is pretty high shouldn’t he be classified as a subprime borrower?

FICO score, loan to value ratio, debt payments to income, etc. Documentation of income.

signing your mortgage as “Mickey Mouse” usually makes you subprime.

Subprime = 624 and below. Midprime = 625-699 Prime = 700+ It’s all about the FICO, nothing else. Alt A mortgages are not subprime; they’re low or no doc mortgages to people with high credit scores, generally with an interest only period at the start of the mortgage.

You might be a subprime borrower if your TV is worth more than your down-payment. This could be a fun thread, a la Jeff Foxworthy.

Not 100% true, skillionaire. Banks and other lenders had subprime programs (as well as alt-A and prime programs). Most subprime securitizations have borrowers with FICOs in excess of what you’ve stated as the high limit. There’s not really a “midprime” designation, at least, not that I’ve ever seen. Sometimes, people who are good borrowers (but not savvy) will sign up with a subprime lender or end up in the wrong program at a lender with multiple programs (less frequently). If someone was dumb enough to pay a subprime rate, then the lender wasn’t going to turn them away. This happened in a lot of low-income neighborhoods, where certain lenders signed up many people, not all of whom should have been subprime borrowers. Additionally, debt-to-income ratios DO come into play, as well as leverage, etc. If you have someone who’s borderline subprime but wants 100% leverage, they’ll probably end up in subprime land. Also, FICO scores are not the only factor. People with bankruptcies on their credit reports (but, say, 4 years out) can have decent FICO scores, but the bankruptcy’s still there. Even with a 700 FICO, they might have been hard-pressed to find a prime lender. Additionally, Alt-A used to be the low-doc/no-doc programs, but they sort of developed into 2 camps. One was the traditional, low-documentation program. Then there developed a sort of “midprime” tier between prime and subprime. So, borrowers with not-quite prime, but not-quite subprime statistics were called Alt-A, even though they weren’t alt-A in the traditional sense.

“Not 100% true, skillionaire.” I’m talking purely from the perspective of a rating agency’s parameters for a mortgage pass-through to be classified as either prime, sub-prime, or mid-prime. In any pool of mortgages, you’re going to have borrowers from the same shelf/lender/originator that have vastly different FICOs. However, I stand by my statement that the only/solo/end-all-be-all descriptive statistic for classifying a mortgage is the borrower’s FICO score. That is 100% true. Now, if the original poster is asking why someone would take out a mortgage from a subprime originator even though they have a high credit score, than the other issues (doc, LTV, ARMs, BK, etc.) come into play. Hope that clarified my earlier statement a bit. [edit: listed prime twice in my first sentence and changed to “mid-prime”]