With the majority of bad credit lenders out of business, the ones that remain are finding great success. (Unnamed Copywriting)

With the majority of bad credit lenders out of business, the ones that remain are finding great success.

Mortgage lenders for bad credit used to be extremely numerous. The rise in house prices and in the overall economy made record numbers of people decide to become homeowners, both those with good credit and those with bad. This made a huge market not only for new purchases, but also for mortgage refinancing.

But, as the mortgage crisis came about, a large number of these mortgage lenders for people with bad credit were forced out of business. The problem was not limited to just people with bad credit. Foreclosure rates were sweeping across the spectrum. Mortgage rates rose and home loans became much harder to get approved for.

But, after the initial wave of bank failures, a few banks stepped in and began offering home mortgage products for both good credit and bad credit borrowers. The result was that mortgage rates began to dip back to where they were prior to the crisis, and it became once again a good option to refinance.

Most banks took the approach of using government insured loans to offer financing for people with bad credit. There are three major government programs, all sponsored by the Department of Housing and Urban Development. The Federal Housing program, a loan program for borrowers with bad credit and first time homeowners has actually been around since 1933, but was a program that most lenders didn’t take their clients through. In the height of the mortgage boom, the process of getting a loan closed with a sub-prime lender was so easy that it didn’t make sense to go through the painstaking paperwork involved with a government loan.

However, as all of these other options have disappeared, the FHA program has become a very strong alternative, despite the very high level of red tape. With these loans, as well as Veteran’s Affair, or VA loans, the ability to get approved for a very bad credit mortgage is, and always has been there. But, unlike before, there are no options available that are easier to get approved than these, so they have become the major forms of lending for borrowers with bad credit.

There are also United States Department of Agriculture loans that, for the most part, appeal to the same underwriting and approval standards. However, unlike FHA and VA loans, USDA loans are very limited by location. While available to bad credit borrowers as well, the USDA and Rural Development, or RD, loans can only be offered for homes that are in rural areas. There are only certain counties that qualify for the program, and then on top of that, within those counties, the loans still cannot be originated in urban areas. But, for borrowers outside larger cities, these still remain the best available option for financing.

Banks that have started actively marketing and offering government insured loans are not only seeing increased loan volume in the poor credit areas, but are also seeing an overall increase in total mortgage volume as well. As sub-prime loans have left the market, the government loans have filled the gap that they left behind.