In the news recently and again today was more concern over the "wild west" nature of the sub prime lending market over the last five years. Mortgage lates are on the rise, foreclosures seem to be popping up here and there and the concern is that the market for home buyers with poor and damaged credit that has helped to fuel the housing market are now frozen out of the market. Of the top 25 sub prime lenders over the last five years, only a handful are still around.
The implosion of this sector of the credit markets is undoubtedly troublesome and could spell catastrophe for the lower price ranges in our marketplace. Rising inventories driven by owners that were stretched beyond their borrowing capacities by less than reputable mortgage brokers shilling poisonous credit products could result in more short sales and foreclosures.
A bright spot on this othewise dark subject are the community lending and reinvestment based products underwritten by new FHA guidelines. Anecdotal evidence as to how these products are helping abounds. I recently heard a story from the top lender in our area about a first time buyer looking to get into a home priced at $129K. In the subprime pool (550 credit) she was being quoted a first mortgage at 9.99% and a second to make up the balance of the purchase (she had about $2500 to her name at the time) at almost 13%. Working through community based FHA lending she was able to secure a 30 year fixed at just under 7%- a product that most likely saved her from financial ruin as the carrying costs of the debt quoted in the sub prime pool would have certainly buried her over time.
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