Not the End of Subprime, But a Trend Toward Quality
Despite the alarming stories about the subprime mortgage market "fueled primarily by major troubles at New Century, Ameriquest and Harbourton" this is not the end of the subprime market, just more of a flight to quality. Yet, Lawler predicts the subprime market, which accounted for more than half of all loans that entered foreclosure last year, could drop by 25-40% this year. Housing experts predict tighter underwriting guidelines could also result in 100,000 to 250,000 fewer home sales.
"There will be a way that everybody can get through this," reasons Griesser. "It's gone way too far one way, and now it's swinging back the other way. Somewhere in the not to distant future, they'll be some alternative product. It's the way the world works."
What Lenders, Brokers and Consumers Can Do
Mortgage executives at realty affiliates offer the following advice in light of the latest flap surrounding subprime loans and other risky mortgage products:
- First and foremost, owner/brokers should be involved in their mortgage companies; if engaged in a joint venture, they should sit down with the venture partner and discuss the lending model being used.
- Lenders should educate agents in their realty firms about the consequences of putting people in homes they really cannot afford; now is a good time to also talk about mortgage insurance as an option.
- Consumers should be made fully aware of what they're doing. If customers have no doc loans, they should be given separate disclosure statements that identify the loans and reveal that a lower mortgage interest rate loan could be obtained if more documentation is provided.
- Agents and lenders should talk to customers about getting qualified under the new standards and also discuss the pitfalls of subprime loans.
- Agents and lenders can also talk to customers about why they need to either improve their credit before trying to get a home loan or wait six months to build up enough money for an appropriate down payment.
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