B, C and D paper loans are types of subprime loans. There was a time when they were hard to find; however, when the housing market took off, so did the number of lenders offering them. Not so today. High default rates on subprime mortgages made to high-risk borrowers with bad credit or those who had filed for bankruptcy or had a property in foreclosure, now have many lenders either shunning these loans or tightening credit requirements on them.
As a rule, these loans have not met the borrower credit requirements of ‘A’ or ‘A-‘ category conforming loans. Because mortgage lending is divided into various credit grades, several factors influence whether you receive a ‘B’ or ‘D’ designation, including past credit history, documentation, and your debt-to-income ratio. The more serious a borrower’s problems, the lower the grade of the loan, and the higher the rates and fees associated with the loan.