Wow

Between Anna Nichole and the Sub Prime Market trouble you would think there was not very much else going on in the world.  Is the media blowing the sub prime issue out of proportion?  Well lets look at it.  20% of all mortgages last year were sub prime loans.  40 % of those were new home purchase so that would mean that 8% of all the loans last year were purchase sub prime loans (about 100,000 homes).  They figure about 20% to 30% of those borrowers won't qualify with the new changes to the sub prime guidelines. That would mean that an increase of a ½% would have hurt the market more then this change. 

Why has this happened?  Well I would say that investors got a little to greedy.  These low credit score, high interest rate (= high rate of return) loans looked great to investors so more and more money flowed into them.  The more money available to these sub prime companies the looser their guideline became.  They had to loan the money.  As a mortgage broker I always felt like I was in the middle.  If I had a client that wanted a zero down loan and the client had a credit score of 580 and had trouble paying their rent (which was lower then their new payment) I would have to give them the loan (even if I knew they would most likely not be able to make the payments) or I could get sued.  Soooooooo I guess what I am saying is that I am glad that the sub prime companies are going back to their old guidelines because even though I make more money with the old rules, it is bad for some of the people.