Also much talk focused on sub prime loans, but these loans are not necessarily a bad thing. They allowed homeownership for people who would not have been able to purchase a home. The key issue is to understand how a sub-prime loan can be used as a predatory loan.
These loans can involve one or more of the following:
· 100% financing. Buyers do not have to put any money down on the house.
· Buyers apply for a loan with self-stated income. Since no one is checking they can inflate their earnings to buy a nicer house but ultimately over extending their finances.
· 2/28 ARM. A loan with a very low interest rate for the first two years and then goes way up for the next 28 years!
Many homeowners did not understand the mechanics of these loans and were un-educated when it came to making the biggest purchase of their lives. As a result, thousands of people are losing their homes.
The foreclosure rate is through the roof. Recent data shows that there are approximately 100,000 foreclosures each month in the USA. Over half of these foreclosures are sub-prime loans.
Early in 2007, the mortgage industry tightened their standards. As you are aware, to get buyers qualified for a loan these days is a lot harder than it used to be. Since 2006, over 30 sub-prime lenders have gotten out of the market and many have filed for bankruptcy protection.
So, what can we do to help the homeowner?
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