Dec
10
Sub Prime Lending…It Isn’t All Bad!
Written by: barb and filed Under Blog, Buyers, Lending, Real Estate |
People often ask me what do I think of the “sub Prime” lending industry and the “mess” that it has caused recently.
I think that the need to help people to get into a home is always important, however, I like to encourage people who want to buy to purchase within their own budgets. The sub-prime had and still does have a place in the home buying industry. It has been an interesting line to walk on as a lender. You have clients that really need it and can afford it. They understand the upsides and the pitfalls of taking out higher risk mortgages. If a home buyer understands these risks, have the financial resources when and if the products change then it can be a GREAT thing. It is the many clients who purchase without the full knowledge of how these products can touch their lives. Those clients who do not have the financial resources to hold them through the interest hikes.
I would like to say that IT IS UP TO THE LENDER to explain this process THOUROUGHLY and then the borrower needs to be responsible for the loans they sign up for. There are still 100% loans with GREAT rates for the buyers that can afford it and have the financial resources to make it work. There is also the FHA loan which requires as little as 3%. There is even talk that FHA may restructure the down payment into lower restrictions but with higher interest rates to absorb the bigger risk. FHA also allows for some past credit blemishes. Still a great program! The 2nd mortgage that helps to avoid the Private Mortgage Insurance is getting harder to get. Many lenders are requiring higher credit scores and larger down payments. Private Mortgage Insurance (PMI) may become more prevalent again. It is now tax deductible for many buyers. You will need to check with your lender if you are one of them. I love the lending market now. It allows for borrowers to once again to plan when and if they want to buy and not pressure them into purchasing now because the market may be buying them out of a qualifying position!
How do I feel about what the governments is doing for those clients who need to be bailed out? Well that is a whole other subject. If you really want to talk about that one, you will need to reply and ask me about my opinion 
***Cartoon provided by Maine Cartoons***
Comments
2 Responses to “Sub Prime Lending…It Isn’t All Bad!”
Leave a Reply
Subscribe
Frequent Contributors
Rebecca Kuno
Realtor & ASP
(206) 686-1661
Post Archive |
RSS Feed
Barb Paetzold
Mortgage Expert
(425) 820-0601
Post Archive |
RSS Feed
I think that cartoon is great. I think it really sums up everything that happened with subprime lending.
Buyers felt like property values would continue to appreciate astronomically and thus often time bought without any paying any consideration to what they really could afford. Often times putting people at a huge financial risk.
Meanwhile, several lenders (not all), had the same mindset and therefore were willing to underwrite the risky loans because (1) the money they would make off selling the loan (2) the thought that if the buyer defaulted on the loan, they would have a very valuable asset as collateral.
Regardless, both parties are at fault. Buyers [in some cases] being greedy or unintelligent about their decisions and lenders [in some cases] being greedy or unintelligent about the downsides of some loans for some buyers.
Another great option, that’s not subprime, is 100% financing that is offered by Fannie and Freddie. I prefer LPMI (having the pmi financed into the rate) because pmi is only tax deductible during 2007. I don’t beleive Congress has extended this benefit to consumers as of yet….heck, they haven’t been able to pass the FHA reform bill or do much of anything during this mortgage crisis!
It is the lender’s job to explain and help educate the borrower. However, the consumer is the one signing their names on the dotted line and ultimately, it is their responisibility to understand what they are signing and committing themselves to as well as being keenly aware of what condition their finances are in.