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Sub-Prime Mortgages
First of all, let us explain what a sub-prime mortgage is exactly. A sub-prime mortgage is a sort of loan targeted towards borrowers with less than perfect credit. As a matter of fact, for those with a credit score in the lower 600's or worse, a sub-prime loan is generally the only type of mortgage available. Sub-prime mortgages are not top-of-the-line loans, as the name implies. Sub-prime mortgages have higher interest rates than equivalent prime loans and frequently contain specific provisions such as prepayment penalties and balloon payments because their borrowers pose a higher risk due to their poor credit ratings. Sub-prime mortgages rose to prominence in the 1990's as lending institutions took advantage of changing regulations to extend credit to the people who have questionable credit histories. This could either be a good or a bad thing, depending on how you look at it. On the good side, the sub-prime mortgage offers opportunities for home ownership to those who would typically be denied a standard prime mortgage and allows these credit challenged individuals the chance to reestablish a positive credit history. On the down side, a higher percentage of sub-prime mortgages fall into default or foreclosure when they are compared to standard prime mortgages. Even though this sounds bad, it must be noted that approximately 93% of sub-prime mortgages do not fall into default or foreclosure. The growth of sub-prime mortgages has been phenomenal with annual increases averaging 25% since their inception in the 1990's. In 2003, sub-prime mortgages comprised practically 10% of all mortgage originations in the U.S. with a value estimated at $332 billion. Even though this dollar figure is higher than that in Canada, it does demonstrate the growing popularity of sub-prime mortgages.
Now, if the borrowers of sub-prime mortgages pose an elevated risk, how is RHWC attempting to limit this potential pitfall? RHWC utilizes specialized management software called Special Mortgage Application Reliable Technology (SMART) to assess the risk of prospective clients. According to the company, the SMART application is a complete web based mortgage software system that enables Reliant to provide online mortgage brokers with easy-to-use auto adjudication origination coupled with a full in-house servicing, risk management and underwriting application software platform. Reliant CEO Boyd Sussanna noted, "Reliant's exclusive licensing of this front end web enabled software platform allows [Reliant] to cost effectively originate, service, underwrite and risk manage mortgages throughout the North American residential market. The SMART platform enables real time approvals and immediate service to our clients' needs." To put it in other words, the Reliant SMART application limits the company's risk and permits much of its business to be conducted in a fast and well-organized manner.