Why is it so hard to get a home loan if you have bad credit? Blame the government behemoths that control 90 percent of American mortgage financing.

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Fannie Mae and Freddie Mac enacted a policy that can force lenders who sell mortgages to them to eat the loans if the borrowers default. Tiny mistakes in loan processing or underwriting can put lenders on the hook, even if the cause of default is completely unrelated to the lender's practices -- for example, a medical catastrophe or job loss on the part of the borrower. That has scared the pants off of many lenders, so now they'll only lend to the lowest-risk applicants.

The exit of all subprime and Alt-A lenders from the market left a huge void in mortgage financing, and it was only a matter of time before someone moved in to exploit that opportunity.

Subprime mortgages are back

Premier Mortgage Lending in Las Vegas, Nev., is offering "Another Chance" home loans for people with bad credit, short sales or foreclosures in their history. Other companies may soon follow.

Another Chance loans carry higher-than-typical mortgage rates (8.99 percent as of this writing) to compensate their investors for the added risk they're taking. Borrowers may close within 30 days of loan approval.

The new breed of bad-credit loans

The new subprime mortgages are not the sort that sucked the life out of America's housing markets a few years ago -- mortgages for people with the triple whammy of bad credit, no down payment and no income. To get one of these new bad-credit mortgages, you'll need at least 20 percent down and enough documented income to afford your mortgage plus other expenses.

Here are some of the key requirements for Another Chance loans, which may reflect what similar mortgages will require:

  • History of bankruptcy is acceptable. Chapter 7 bankruptcies must be fully discharged. If you have a Chapter 13 bankruptcy, you must have proof of 12 months of timely payments plus court approval to purchase property.
  • History of foreclosure or short sale is acceptable. In fact, borrowers with a foreclosure or short sale are acceptable one day after the transfer of ownership.
  • Maximum debt-to-income ratio is 45 percent. You may qualify for a higher debt-to-income ratio if you have a bigger down payment or other compensating factors.
  • Reserves for three payments. You must have enough money to make three mortgage payments (principal, interest, taxes and insurance) after closing.
  • Documentation of income. You'll need to provide two years of tax returns with W-2s and schedules, plus pay stubs covering the most recent 30 days.

Don't live in Nevada? Don't give up

The most exciting thing about this reentry into subprime lending is that, if successful, Premier's business model may be repeated nationwide. Investors wanting a healthy rate of return may trigger an intelligent return to bad credit or subprime mortgage lending.