Five years after the financial crisis peaked, executives from the top 25 subprime lenders before the mortgage crisis are developing new products aimed at borrowers with low credit scores and small down payments. Most of these newer, “non-bank” lenders are making or collecting on loans that could be too risky to earn a government guarantee, raising the concern of some industry watchers. Critics say these bad apples from the pre-crisis era are making a return because there was no real effort to hold them accountable for their past misdeeds. "Old habits die hard, especially when there's no incentive to do things differently," says Rachel Steinmetz, a whistleblower who formerly worked as an underwriter at subprime lender GreenPoint Mortgage. "The same shenanigans are going on again because the same people are controlling the industry."
This time, however, they can expect unprecedented scrutiny by investors and regulators such as the Consumer Financial Protection Bureau, since many of the subprime era's riskiest practices, including "balloon loans," have been abolished. Although newer loan offerings are still fairly safe, companies loosening standards on required documentation and the size of borrowers' payments. While non-prime loans by non-bank lenders make up only 5 percent of the market, the industry is growing. Susan Wachter, a real estate finance professor at the Wharton School, says that the "toxic business model" still exists. She points out that companies depend largely on fees from originating and servicing loans, and that this income stream grows only if lending increases. To make that happen, Wachter says, companies eventually must “undercut competitors by getting people into those loans on whatever terms possible.”