Occasionally, I will publish an article that is timely, informative, or helpful but written by a real estate industry professional who I know and trust. The following was written by Kellie Allen, a mortgage consultant with Countrywide Home Loan in Eagle.
The Subprime Loan Hype
by Kellie Allen
The headlines are full of news on the mortgage and real estate front about the “subprime meltdown”. What exactly is going on and what impact if any does it have on you?
A “subprime” home loan is a loan where the client has some significant credit issues or was for some reason unable to qualify for standard financing. These loans are risky for the lender and therefore bear a higher rate to the client. Most often these loans are adjustable rate and carry a prepayment penalty. These loans have been around for a long time, so why all the drama now?
The current rising interest rate environment has meant that these adjustable rate loans have been on the up swing. As these rates move higher, so do the monthly payments. Homeowners are finding it difficult to keep up with the increased payment. In the past, a homeowner would put the house on the market, get enough profit to pay off the existing loan and prepayment penalty and move on. The problem today, is with the soft real estate market houses are not selling as quickly and home appreciation rates have moderated.
This leaves the subprime homeowner stuck, causing many to be foreclosed upon. As more and more loans are defaulting, lenders are forced to tighten up lending standards across the board. This in turn makes it tougher for the troubled homeowner to refinance as a possible solution.
So, how does this impact you?
Long term, it may mean higher interest rates ahead as lenders have to absorb the cost of the loans they have back, combined with the cost of increased compliance and accountability standards.
Now more than ever it is important you work with a true mortgage planning professional. It is the perfect time to get that “financial check up” to make sure you are in the right loan for your short and long term plans.
For more information, contact Kellie (208) 938-6611 or visit Kellie’s website.
1 response so far ↓
Marie Dopico || Jul 23, 2007 at 2:01 pm
Your comments are so right! Most people don’t remember in the early 1980’s when people that had great credit were getting rates of 17%…… Everyone got very spoiled by all of the cheap money that was being lent in the last few years, and now that reality is setting in, it has sent shock waves to borrowers as we are all paying for the easy money and sloppy underwriting of the last few years.
Leave a Comment