This move reflects the changing attitudes and standards of the mortgage market, as well as the current economic landscape.
Option ARMs are adjustable-rate mortgages that provide borrowers with the option to make payments based on a traditional principal-and-interest plan, but also offer the option to make reduced payments or even skip a monthly payment if needed. This essentially allows borrowers to underpay each month, thereby potentially building up an “accumulated deficiency” over time. This diminished repayment flexibility, however, has become more restrictive in recent months, particularly for borrowers with bad credit or low incomes. As a result, lenders have been increasingly cautious about offering these types of loans due to the increased risk.
The move by LendingTree follows the decision by many other lenders to cut back their offerings in this area. This includes the elimination of ads targeted towards bad credit borrowers. While it is possible for those with bad credit or lower incomes to still qualify for a mortgage from LendingTree, they are instructed to contact the company’s customer service line in order to be provided with options that may fit their financial situation.
This decision highlights the changing landscape of the mortgage industry. Due to the pandemic-induced economic downturn, lenders have become increasingly strict in their guidelines for approving mortgage loans, often focusing on stricter credit requirements and larger down payments. In response, many lenders are reducing their risky offerings while increasing their focus on mortgages with lower rates and less stringent qualification criteria.
The recent move by LendingTree to end its Option ARM offering and cut its bad credit advertisements demonstrates how the housing market, credit environment, and overall economic outlook are continuing to influence the mortgage sector. The fact that such a major lender is reducing its riskier loan types is a sign that lenders are becoming more conservative in their lending practices. This could ultimately mean better-qualified borrowers and more responsible lending going forward.
This article was contributed on Dec 05, 2023
