Sub-prime market remains hottest area for mortgage lending growth.

Borrowers with blemishes on their credit ratings - the sub-prime market - may well be the most explosive area of growth in the hotly competitive home mortgage industry. Factors of both demand and supply are helping drive the ballooning sub-prime business.

On the demand side, bad consumer credit practices have not improved with the economy, meaning there are plenty of borrowers with Class "B," "C" and "D" credit. There were 1.3 million bankruptcies in the United States in 1997, the last year for which we have records. Personal bankruptcies in New York State were up 17 percent. New York City and its suburbs accounted for 61 percent of the new, higher total for the state. Potential borrowers with bankruptcies or missed payments on their credit records are the fastest growing segments of the home mortgage business.

On the supply side, both the rapid influx of new lenders into the sub-prime market and the low cost of money are improving the prospects of sub-prime borrowers. A large number of previously leery lenders, even those of the caliber of Chase, have jumped into the pool. Competition to write loans has, in turn, driven down rates and made terms more flexible for borrowers.

The overall reduction of interest rates have had a similarly beneficial effect. When prime rates were 9 or 10 percent, the premium that sub-prime borrowers paid resulted in rates of 12 percent or more, effectively raising monthly payments beyond buyers' reach. With prime rates expected to hover at record lows for most of 1999, sub-prime borrowers are finally able to purchase a home with an affordable loan.

The lending environment has so dramatically changed for sub-prime borrowers that they are also finding it less costly and difficult to rehabilitate their credit. They generally pay fewer points at closing and lower rates on loans than in the recent past. Lenders are even making loans that allow these borrowers to finance up to 125 percent of the value of their home.

Interestingly, the more lenient underwriting rules have created a paradox: often loans for a 'B", ~C" and "D" borrower can close as quickly as two weeks, much faster than for the typical mortgage.

For borrowers, the key to taking advantage of the fertile market for sub-prime lending is working with a mortgage broker familiar with sub-prime lenders, many of which have wholesale operations only and cannot be directly approached by borrowers.

Another key for borrowers is to work with a professional with knowledge of how to best prepare for and present an application that addresses the previous bankruptcy or missed payments. With sufficient time, a good broker can even help reduce the number of black marks on a bad credit report. Mortgage brokers know how to minimize the obstacle posed by past credit problems, know which lenders to approach for a given borrower and are more successful at structuring sub-prime applications so that they are approved.

At HMAC, we have created a Subprime Lending Division with the experience and knowledge to capitalize on financial institution's renewed interest in lending to subprime borrowers. Our marketing efforts to reach subprime borrowers include educating them through telemarketing, print advertising, direct mailings and seminars on the new opportunities to more easily obtain lower cost mortgages.

The days when subprime borrowers had to deal with shadier institutions are a thing of the past. With the entrance of eager new lenders, the business of subprime mortgages has become much more professional, desirable and profitable.