There is some evidence, however, of what's happening in the subprime mortgage market, separate from these 125 percent loans, and it's not pretty. To get a 125 percent loan, you have to have good credit. For everyone else, there's the subprime market, which also is growing. Subprime loans increased from 11.5 percent of the overall mortgage market in 1996 to 15.5 percent last year, according to Mortgage Information Corp. in San Francisco. Subprime loans differ from typical mortgage loans because they are aimed at borrowers with high debt levels and credit problems ranging from a few late payments to bankruptcies and foreclosures.
Some borrowers are self-employed, or recent immigrants, or others without established credit.
For whatever reason, most don't qualify for conventional loans at the lowest rates. A traditional, market-rate loan might carry a 7 percent interest rate and one or two points in fees, which are a percentage of the total loan. Subprime lenders' rates and fees will vary with the borrowers' credit quality, ranging from lows of about 8 percent to as high as 20 percent and above, not counting points and fees, which also usually are higher than for regular mortgages. Consumer advocacy groups contend there are other differences. Traditional mortgages typically have a grace period for late payments, while some subprime borrowers may not even realize that interest accrues daily on their loans, in the same way it does with many credit cards.