Three weeks ago, someone with a 580 credit score, a pay stub and a W-2 could buy a home with no money down.

Over the last week or two, that all disappeared.

Nearly every day in the papers, on the radio and on the web the news is how awful sub prime loans are.

I would like to say that it was a FEW lenders and borrowers that took advantage of sub prime loans in a way that endangered their finances, but accoding to the news, I just might have to believe that it was a LOT of people.

The main gist of the news is that the villains...oops, I mean lenders...gave a loan to their clients that would adjust rate and payments so their clients couldn't afford the home anymore.  And the story goes that the people didn't understand that this was going on.  I know that this happens, because some of the people that I work with have gone through it.

Still, I'm sad to see subprime loans go away.  Here's why:

Subprime loans entail more risk than a regular home loan, but, let's face it, every home loan entails risk.  That's why lenders charge interest and fees and have loan guidelines.  They're trying to protect themselves from the risk that a borrower won't pay back the loan.

I did a loan for a friend of mine who is a musician.  His name is Tyrone Wells.  He bought his condo over two years ago, but because he writes off a lot of expenses, his tax returns wouldn't show the income.  Plus, he rented out rooms to boarders and that income doesn't typically qualify a person.  To buy the home with stated income put him in a 'subprime' catgeory.

Tyrone's business was growing (he's now on Universal Records) and eventually he didn't need any boarders to make financial sense.  He's doing great.

After a couple of years, Tyrone refinanced into a fixed interes rate.

Going in, I told him: this loan is only good for two years.  I'll mark my calendar and follow up with you then.  And there's the possibility that your home won't appreciate as quickly as they have been doing recently.  Then you might not get the best loan you can.

He decided to buy the condo and take that risk.  It paid off well for him.

As long as someone goes over the risks with you, it's your decision to make.

An even better example: Some of my borrowers have credit problems because of circumstances beyond their control.  Other than subprime, only FHA loans (government loans) are somewhat flexible with a person's credit problems.  But they're nowhere near as flexible about bankruptcy, liens, judgments or collections as a subprime lender.

You might not know this from the news, but a sub prime loan doesn't have to be an adjustable.  Because of subprime loan, I've been able to help these people refinance into a 30yr fixed, reduce their monthly expenses and save them from losing their homes because of whatever awful thing happened to them or whatever mistake they made. 

A final note: I bought my first home using a subprime loan.  They're not just for folks with bad credit or suckers who don't know what they're getting into.  They're for anybody who doesn't quite fit the perfect loan.

It's a shame that people aren't able to make their housing payments.  It's a shame that some lenders don't tell the truth.

But it's also a shame that for someone who doesn't fit the perfect mold that there's no options for them all of a sudden.  Subprime lenders going under is not a good thing.  It means that more, not less, will have to walk away from their homes with a foreclosure.