The major difference for subprime homeowners is that the amount of the loan is usually smaller and it comes with a higher interest rate. Overall, U.S. homeowners have a good track record for paying bills. Between 25 percent and 35 percent of American homeowners fall into the subprime category, which means they have been late in making payments on debts. In the subprime group, however, only 10 percent have a C or D rating, which is given to those with serious credit problems. That means 90 percent of homeowners in the subprime category have experienced only minor credit difficulties.
Lenders say there are no fixed rules in making loans to subprime borrowers.
Each application is looked at individually. There are myriad circumstances that can cause someone to miss a payment on a mortgage or other loan. The personal circumstance may be a divorce, a medical emergency or a temporary job loss. In contrast, a prime borrower can obtain a home equity loan with a 90 percent LTV, and some lenders go as high as 125 percent. LTV is important because, if a borrower can't make payments, the lender turns to the property to recover the amount of the loan.