Upside Down Mortgage

Archive for April, 2008

Subprime Market Definition

The most recent regulatory report on subprime lending is the Statement on Subprime Mortgage Lending (June 2007). This 31-page document was released by the Federal Reserve and other federal financial regulatory agencies in response to the current out-of-control subprime lending market. It describes in detail the requirements made of subprime lenders for the financial protection of both the borrower and the lender.

The first issue of concern is improved communication to subprime borrowers about the real, hidden cost of their adjustable rate mortgage (ARM) loans. This kind of loan is often suggested to subprime borrowers because the introductory rate of interest is so low – so low, in fact, that it’s often called a “teaser rate”. Before the appearance of the government Statement, ARM loans assessed huge penalty fees for refinancing the loan or prepaying it before the term expires. Often, the penalties continued for most of the duration of the loan.

Regulators tighten rules for subprime lending in the Statement by providing guidelines requiring subprime lenders to offer full disclosure of fees and rates associated with an ARM. Moreover, they state that “liar loans,” loans that ignore a borrower’s capability of repaying the loan and require no documentation of earnings, must be curtailed. These liar loans are also called “stated income loans,” “low-doc loans,” and “no-doc loans.” A borrower simply states the amount of his income, without being required to produce a W2 form or pay stubs to substantiate his statement. Based on what he has claimed, he qualifies for a loan he cannot really afford. It’s clear that this practice is the cause of at least part of the subprime market problem!

The Statement is specific about predatory and deceptive lending practices – what they are, and why they must not be used. Such predatory practices often victimize those who may not really understand what they are being asked to sign, members of particularly vulnerable groups: the elderly, minorities, and first-time home buyers. It is also very clear about the fact that not all subprime lenders can be considered predatory.

If you are a subprime buyer, what do these new regulations mean to you? For one thing, you can’t be entrapped in an ARM with an upcoming reset date: 60 days notice is now required. If you decide to refinance early in the loan, or if for some reason you become able to repay it early, no astronomical prepayment fees will be assessed. Lenders must now require proper documentation to verify income. This is a positive improvement, because a subprime borrower should never borrow more than he will really be able to repay. Many subprime financial institutions have gone under in recent years, simply because they ignored the critical need to determine accurately each home buyer’s capability to meet financial obligations. The regulations force subprime lenders to deal more ethically with subprime borrowers. They must show due diligence with their determination of these borrowers’ future solvency. Foreclosures ruin local real estate markets, as well as borrowers and lenders.

Earlier guidelines issued by the regulatory agencies have been tightened by the Statement. Some have been incorporated into its text; others, like the 2001 Expanded Guidance, are referenced. The intention of the federal agencies in tightening the rules for subprime lending is to protect subprime borrowers from lenders of questionable integrity, and to protect lenders from ruining themselves because of laxity in their underwriting practices. This document is bound to have a positive effect on the current downward-spiraling real estate market.

About the Author:

Learn When Did Subprime Lending Start and all the chaos as well as learning more about Expanded Guidance For Subprime Lending Programs when you visit http://www.subprimelendingcrisis.com.

Article Source: ArticlesBase.com - Subprime Mortgage Lending - Regulators Tighten Rules

The Fed should not Regulate Banks -they have a Conflict of Interest.

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Subprime Credit Score

Question: Bad Credit Loans (Subprime Personal Loans)?

I'm finishing my last two classes this summer for my Bachelor's Degree currently financed with Federal Loans and Grants. I qualify for the maximum financial aid available from Federal and State funding because of my household size and income. I have a past bankruptcy (3 years ago discharged), but steady payment histories for the last 2 years, FICO score of 579. My husband has a FICO score of 624 and is willing to co-sign a loan for me. Without putting numerous inquiries on my credit report where can a person like myself get a loan (about $15-$20,000) for my graduate school based on my poor credit history? Thank you.

Answer: Try Prosper (online). It's a micro-lender. You're on the edge, but may still get what you need.

You're going to pay a high interest rate. Advice - if you do the Prosper loan thing - list at the highest interest rate (not the highest you want to pay - the max rate period) and then - don't end the listing early. Let it run the full term. You'd be surprised at where it ends up.

What happens is that first you get to 100% funded at your offered (very high) rate, then as time goes on - people see that it's funded, and start to bid it down.

The people who don't get funded list at the rate they want to pay, and no one bids. The ones who do get funded, list at 29% (or more), and it eventually gets bid down (usually in the last hours) to something reasonable for your condition.

It's a marketplace like eBay - but for loans. And the collective thoughts of many people (sometimes 500 or so) who each loan $50-$100 dollars sets the final rate.

They will do a credit check, verify your residence (better if you own a home), will verify employment, and it will be added to your credit report, but if you make your payments on time - it should improve your score.

how to raise my credit score