With 1 out ever 5 homes in our area having a subprime loan, and knowing that all of these subprime loans were meant to be "Band Aid" loans. Band aid meaning a temporary solution allowing the consumers some time to correct their past credit woes. Knowing that in 2 or 3 years they will have to refinance, the goal is to have them in a position where they can go "A" paper and refinanced out of their high interest rate subprime loan. As a lender we also expected that during this 2-3 year period of time, the consumers home as appreciated. So lower loan to value and better credit should equal a much better rate, Right? Yes, Right.......... That is where the problem lies, subprime went out on a limb got a bit crazy with 100% financing, with bad credit and stated income, the borrower is now approaching the two year mark and for whatever reason has not worked on improving their credit much, and uh oh values are the same and in some cases down from two years ago. The consumer is now faced with an adjustment on their loan - to approximately 11% ( based on the 6 month libor + a typical margin of 6%) - payment goes skyrocketing - foreclosure on the horizon - more foreclosures on the market drives our real estate values down further. I think we as resposbile mortgage lenders, must get to the clients as soon as we can and educate them on what is going down! They don't make following our business thier business, like we make it our business - ( gee that is a lot of business in one sentence) Anyways, just wanted to share what was on my mind.
InlandHomeFinder.com - San Bernardino, CA
InlandHomeFinder.com
Hi Lorraine! Great to see you here. Thanks for the super informative post. I really want to work on educating myself on the mortgage side. Talk to you soon.
Mar 14, 2007 03:22 PM
Buyer's Broker of Northern Michigan, LLC - Petoskey, MI
Northern Michigan Real Estate
Lorraine, call me a devil's advocate, but was it responsible for the mortgage industry to allow people to get into these mortgages in the first place? I recently heard someone call income state loans "liar loans". It seems like everyone knew what was going on, and the potential for disaster, but did nothing. We will probably all end up paying the price if the economy tanks.
Mar 14, 2007 03:37 PM
first american lending - Riverside, CA
Stefan,
I could not agree with you more. Originally when stated income loans were introduced it was a select few, those with 30%down and those with credit scores above 700. Lenders began the deterioration of their guidelines to the point of doing stated income for wage earners....... DUH, if you are a wage earner and you are doing a stated income loan, well it does not take a rocket scientist to figure out the borrower is inflating their income - thus now the the name "liar loan".
Lenders knew what they were doing, and pricing the risk into the interest rate being offered. I believe when it really became outrageous was when lenders just starting hiring anyone to man the phones, to busy to train, they handed the "loan officer" a script and told them to sell. Very Irresponsible for the lenders, shame , shame. Never the less, if the lender is going to offer it, and educate the consumers in the pitfalls, and the consumer still feel they want that loan, they will get the loan.... Kinda like the tobacco industry, alcohol industry, gun industry is the oneness solely on the manufactur or is the consumer lack of control somewhat to blame - I think it's a two way street.
Lorraine
Mar 15, 2007 02:26 PM
RE/MAX Properties, Inc., ABR, GRI, SRES - Colorado Springs, CO
Colorado Springs Realty
Lorraine great post. I think many consumers may not understand what is at risk when they step into a subprime loan with a high interest rate or ARM until they are forced to go into foreclosure. You and Stefan make great points as well in the comments. Unfortunately, when foreclosures hurt the value of other homes in the area, this effects more than just the subprime borrower but the market as a whole.
Mar 15, 2007 06:21 PM
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