Magazine article American Banker

Keep Your Guard Up in Subprime Game, Lenders Are Warned

Magazine article American Banker

Keep Your Guard Up in Subprime Game, Lenders Are Warned

Article excerpt

Banks will have to remain vigilant if they want to step up mortgage lending to credit-impaired borrowers, industry experts warn. "Quality control is the most important thing you can do if you want to be successful," said Neil B. Kornswiet, president of Quality Mortgage USA, Irvine, Calif.

Mortgage companies must adopt systems to detect unscrupulous consumers and their representatives, Mr. Kornswiet said at a mortgage conference in New York sponsored by Executive Enterprises, a firm that specializes in financial seminars.

For a long time, most lenders treated borrowers with marred records as pariahs, but that mind-set is changing, Mr. Kornswiet said. Right now, about 200 lenders, including bank-affiliated units, are "strongly" in the business of lending to credit-impaired customers, he said. These credits are commonly called B and C loans, since they fall below the A quality that most lenders prefer to deal with. They are also called subprime loans.

The B and C products, which can include first mortgages and home equity loans, typically compensate for their greater risks by carrying higher rates and fees.

Regina J. Reed, senior manager with the mortgage group of KPMG Peat Marwick, New York, said these loans can be more profitable than conventional loans.

"But they can also be riskier," Ms. Reed said.

Indeed, borrowers who are desperate for financing may go to fraudulent extremes, executives said.

Customers with tainted credit are more apt to submit false income documents and to make properties appear to be worth more than they are, executives said. …

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