Question

A ____ borrower is a borrower with a flawed credit history and an _________is a borrower who states his or her income but does not document or prove the amount of income.

Answer 1

Answer:

Subprime, Alt-A borrower

Explanation:

A subprime borrower is a person has a high credit risk for a lender. This type of borrowers may also have a thin credit history, meaning they have little or no activity in their credit reports on which lenders can base their decisions.

An alt-A borrower stands somewhere in between a prime and subprime mortgage. Borrowers whave higher credit scores and have lower interest rates get prime mortgages. Alt-A mortgages are typically low-documentation or no-documentation loans. This means that the borrower doesn’t have to fully document their income, assets, and expenses. Instead of the documentation, alt-A loans are processed based on what the borrower states are their income, assets, and expenses.

Answer 2

Answer:

A SUBPRIME borrower is a borrower with a flawed credit history and an ALT-A BORROWER is a borrower who states his or her income but does not document or prove the amount of income.

Explanation:

Subprime borrowers are borrowers that have a bad credit score and because of this, any bank or other lending institution will either reject them as clients or charge them a really high interest rate on a loan.

An Alt-A borrower is in the middle between a prime borrower (good credit score) and a subprime borrower. He/she will not get rejected as often, but the interest rates will still be relatively high and the amounts of money borrowed tend to be smaller than prime borrowers. Some companies like Fannie Mae or Freddie Mac do not accept Alt-A borrowers, but most banks do.