So way back in 2002 was the first time I started to get a sense that subprime lending might have some challenges ahead. First I had a client who was forced to go subprime, and then a report was written by a non-profit consumer advocacy group, the Center for Community Change, starting me on my path of "paying attention" to what was going on in the industry.
A CNNMoney.com article on that report is available online - http://money.cnn.com/2002/05/01/pf/banking/subprime/
The report and my client tumultuous transaction led me to believe that subprime lending might be helping to fuel some of the record real estate booms I was seeing in my marketplace. As I began teaching I would step lightly into that new ground, using terms like "lower than average credit score", or "slightly higher credit risk" and the gathered would not even flinch. They were seeing it too.
As my market area widened and I grabbed hold of the largest possible client base and region, I was hit, for the first time in 11 years in the business, with a true SubPrime lending situation. My client ended up paying about 80% over the current 30 year fixed rates and an additional $8000 in closing costs, junk fees and unnecessary lender charges. At the closing, he wrote a personal check for $147 that wasn't even on the good faith estimate delivered to us the day before the closing, just to get the deal done.
After the closing I took the lender aside and "gently suggested" that he might want to refund at least a portion of the absurd lender charges else I might...............well, I have a big mouth. He understood and did refund over $1,000 after closing to the purchaser. That is subprime-predatory lending.
Jump forward to today, and Inman News' Matt Carter reports that New Century Financial Corp has stopped funding loans. New Century's main business is SubPrime Lending. In 2 separate SEC filings, New Century reported that it had only been able to fund a portion of their loans this week AND that they are the subject of an investigation by the U.S. Attorney's office.
Inman News article by Matt Carter - http://www.inman.com/hstory.aspx?ID=62450
So as I think about my past client, I wonder how many around the country can't complete their closigns this week? How many will be hurt because earnest money will be lost or houses will remain unsold? SubPrime lending has downsides that may have helped fuel a hot market, but will also help fuel a collapse of the market if the real estate industry and the regulators don't get a handle on it. Soon.
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