It's all over the news. Subprime mortgage companies are in the midst of a true crisis! According to The New York Times, over two dozen lenders have already closed their doors for good. In fact, more than half of the top 25 mortgage companies from 2006 have either reported serious losses, been sold off to other companies, or have filed for bankruptcy!
When asked how many subprime lenders will be taken down by the current credit crunch, Bill Dallas, mortgage industry icon and former CEO of Ownit Mortgage Solutions, replied "all of them." When asked how many borrowers would be impacted by tightening credit standards, Dallas estimated anywhere from 10% to 40%, adding, "the coming shift in available products will be huge." This could negatively impact anyone seeking financing in the next 12 months.
How has this happened? And, more importantly, how does this affect your mortgage?
Over the past few years, credit standards loosened considerably. According to a recent article in Market Watch, this was partly due to home prices surging to record levels in recent years. This meant that many people, who would have been unable to purchase or refinance a home, could suddenly obtain more financing than ever before. In fact, even borrowers with serious credit deficiencies could obtain 100% financing without having to document their income.
Now, with more than 15% of these loans in default, the Wall Street bankers who bought the loans have sent them back, and the subprime mortgage companies have paid the price.
What should I do now?
If you or someone you know has a subprime loan, you need to speak with your mortgage professional right away. With loan guidelines and credit requirements tightening and property values still declining in many neighborhoods, you may not even qualify for a refinance if you wait too long. Even if your mortgage has a pre-payment penalty, it may be less expensive to absorb the penalty and refinance into a more affordable or stable mortgage. Fixed rate programs are currently approaching eighteen month lows.
In the event that you now owe more on your home than it's currently worth, or if you don't have enough equity to sell your home and cover expenses, help could still be available - but you have to act now. Don't wait until the guidelines change, and it becomes too late for you to do anything.
If you or anyone you know could use my help, please call me right away. As always, I will provide a free review of your mortgage, credit report, and finances, and help you find the right balance for your financial goals and needs.