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Subprime Cards

Question: How Many Months of Not Paying Mortgage Until Mortgage Banks Foreclose in California?

My brother has been unemployed for a long time, has a Subprime Loan, has No Equity Left, and up until now has made every payment.
"Loans" (in reality gifts) from friends and relatives and a maxed out Credit Card have kept him from being homeless.
It seems we are throwing money down the drain.

How quickly would he be Foreclosed On and evicted if he stopped paying?

Answer: Ok, technically it goes like this, after 90 days they send out a Notice of default and if he does not bring payment current/workout something with lender, they'll file a Trustee Sale date and he receives a Letter stating the date the property is going for auction. Therefore due to the mess there are some "lucky" people that don't received this Notice of Default months and months into not paying their mortgages. i definitely suggest he short sales his property rather than just "let it go". letting it go = foreclosure and that ruins his credit. Having a short sale processed will not affect his credit as bad, and if he can show the lender9s) he used to have money etc and not now there's not a reason they would not allow a short sale.

House Of Cards - P2

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Subprime Loans

Are you having a hard time refinancing your loan?  Have you noticed that interest rates are fluctuating like crazy?  Well, unfortunately, the real estate market is going nuts these days trying to find the top, the bottom or just some sense of stability.

Recent news coming out of Mortgage Finance magazine confirms that recent spikes in mortgage rates have consumers wondering whether they have missed the chance to refinance.  After months, and almost years, of incredibly low interest rates, the declining rates seem to be at an end.  However, no one knows what the situation is, and it has the entire industry in flux once again.

For example, some in government positions are saying that the housing crisis is almost over, while banking titans and Wall Street financial gurus are claiming the opposite.  Mortgage interest rates are up one day, down the next, and homeowners are being slammed in the process. The interest rate you get this week might be worse than what you could get next week.

Solutions

If you are trying to refinance because you are in a difficult financial situation, a loan modification might be the answer you are looking for.  Refinancing your house is incredibly difficult, especially if you have bad or poor credit.  If you have not stayed on top of your credit score, or if your current financial troubles have affected every area of your life, refinancing might not be the option for you.  A California loan modification does not hinge upon what your past credit score is, it hinges more upon your ability to continue to make payments throughout the course of your loan.  If you have a subprime mortgage with payments that are ballooning, a loan modification might be a more effective avenue than refinancing.

Fluctuating interest rates means that lenders might just sit back and allow the rates to fluctuate until it serves them best.  If this is the case, you could be stuck with a terrible interest rate for months, or even years.  With a loan modification, you could hire a loan modification attorney to work on your behalf to get your interest rate lowered to something you can afford.  As opposed to a spiking subprime interest rate, you might be able to get something substantially lower and/or a fixed interest rate.  Either of these could go a long way towards lowering your monthly mortgage payments and giving you more financially flexibility and stability.  Many analysts are stating that the interest rates will spike heavily once the government’s efforts to buy mortgage-backed securities ends.  Any efforts to kick-start the economy will collapse if that happens, and refinancing will be near impossible.

A California loan modification attorney might just be your new best friend.  They have options available to you that you may not have explored, or even thought about.  While refinancing at times can depend upon the mood of the banker, a loan modification attorney will work aggressively to get you terms you and your family can live with.

Avoid the fluctuating interest rate game and contact a California home loan modification attorney today!

About the Author:

Loan Modification Help Center is a free gathering place for resources and information on the rapidly evolving field of loan modifications. The internet is over flowing with information on this subject with the problem being that there can be as much bad information and advice as good. For a homeowner struggling with mortgage payments and facing the possibility of foreclosure, the importance of getting straightforward information with no agenda or ulterior motive is of utmost importance. The resources we make available at Loan Modification Help Center are just what homeowners need as they seek to understand their options and get the information they need to make the critical decisions involved in a loan modification. For more information about mortgage loan modification visit loanmodificationhelpcenter.org.

Source - Loan Modification Help Center – Do Not Trust the Interest Rates

Fmr Wells Fargo Subprime Loan Officer: Bank Targeted Black Churches for Subprime Loans 1 of 2

When Did Subprime Lending Start

Question: Trying to understand the subprime mortgage crisis (WILL PICK BEST ANSWER)?

I just have a quick question about the subprime mortgage crisis. From what I have gathered, the subprime mortgage crisis occurred because banks where offering these adjustable mortgages in which, the monthly payments started out low and then, after about 5 years, they were upped to make up the difference. After that 5 year time period, people realized that they couldn't make the monthly mortgages payments and were forced to foreclose. Was this not a problem before because we didn't have these types of mortgages or because the lending regimen for these loans got loose? I also read that it was because interest rates fell and house values were growing between 2004-2005 so the incentive to buy a home was high but I'm not sure why the interest rates would fall and why housing values would grow during that time?

I appriciate all your responses and I'll pick the best answer so be specific!

Answer: Here are the short answers to your questions:

1. The products you describe are known as "Adjustable Rate Mortgages" (ARMs) or "Fixed-Adjustables" (fixed rate for a period of time and then the interest rate adjusts). ARM loans have been around for decades, so these are not completely new loan products. The subprime market did introduce some innovations, such as "80/20 loans" where the borrower borrows the money for their "20%" downpayment on the bigger "80%" loan. Sometimes these loan products end up having NO equity for the borrower (and therefore little incentive for borrowers to keep up their payments).

2. There is no such thing as a "bad" loan product in and of itself. ARM loans have a horrible reputation right now but it's not the fault of the product itself. The problem is (as you mentioned) loose underwriting guidelines where just about anyone (regardless of crappy credit, etc.) could get a loan for a higher rate of interest.

3. You're right again. There were tons of incentives to buy homes (including incentives provided by the government if not downright compulsion by the government for mortgage companies to make foolish loan decisions to poor and minority communities which could not afford to make the payments).

There was not ONE central reason for the mortgage problem. Rather, it was a confluence of factors. I'll describe the main ones in my answer below.

Those who study mortgage trends have said that there has been a pretty consistent pattern of a "bust" in mortgages about every 18 years since World War II. We've seen problems like this before and we will survive this "crisis." If you're looking for a mortgage right now, rates are still very good. The world is not ending (as the politicians who are itching to "help" would have us believe).

In my opinion, the best way to prevent this from happening again, is for the Free Market system to be allowed to punish bad decisions and reward good decisions (as it always does). Government regulation is just something politicians and anti-business people like to propose because it makes them feel good. In reality, the mortgage industry is already highly regulated... and yet the "mortgage crisis" occurred. One of the many regulations that the government has is to disclose VERY clearly and plainly the interest rate of the loan and any adjustments to the interest rate... and yet borrowers claimed that they "didn't understand what they were signing."

Now to the larger question of what caused the mortgage problem... In summary, EVERYONE involved played a part in the "crisis" to some extent or another.

BORROWERS -- Rather than living within their means, many borrowers decided that they wanted to have a bigger, more expensive house than they could afford. In order to afford these houses, they often turned to loan products such as "Interest Only" loans. With IO loans, you basically pay the minimum amount possible every month and the principal is never reduced. To complicate matters, some loans featured "zero down" where the borrower had absolutely NO equity in the property. Here is an illustration of a typical problem: A property is worth $800,000 at the time of purchase. The borrower takes out an Interest Only loan for $800,000 (putting nothing down). Then the property value drops to $700,000. Now the borrower has a loan for $800,000 for a property that is only worth $700,000. The borrower has ZERO equity in the property so guess what... they walk away from the property and the lender ends up taking the loss.

MORTGAGE COMPANIES (BAD OR POOR UNDERWRITING GUIDELINES) -- In an effort to make as many loans as possible (and to sell these loans to foolishly eager investors), many mortgage companies relaxed their guidelines beyond reason. Some loans had a Loan-to-Value (LTV) ratio of 100 (or higher on rare occasion!). If the property was worth $100,000, then an LTV meant that $100,000 was loaned to the borrower (as stated before, no equity). The lower the LTV, the less risky (and more desirable) the loan is. Another arguably stupid mortgage product was the "80-20" loan. A loan with an LTV of 80 or lower is not considered risky in the mortgage business. Therefore, Mortgage Insurance (MI) is not required for loans with an LTV of 80% or less. (If a borrower has an LTV of 85 and pays it down to 80, then they can drop the MI from the loan.) MI is basically insurance against borrower default. For example, if a borrower defaults on his loan and the lender forecloses and sells the property and loses $2000 in the process, then the MI company will cut a check to the lender for $2000 to make the lender "whole." Rather than requiring borrowers to carry MI on their loans (which would have mitigated risk), the mortgage companies allowed the borrowers to take out a second loan on the same property (a "second lien" or Home Equity Line of Credit or HELOC). This HELOC money was then used as the "money down" on the first loan so that MI could be avoided. For example, if the property is worth $100,000, the borrower might get a HELOC for $20,000 and put that money down on the first loan, thereby lowering the LTV to 80 (thereby exempting them from MI). Another popular loan was an Adjustable Rate Mortgage (ARM) or "Fixed-Adjustable" (where the Interest Rate is fixed for a few years and then starts to adjust (up or down) based on a financial instrument). Borrowers were allegedly given a low "teaser rate" and then (because they bought too much house) couldn't make the payments with the higher interest rate when the rate adjusted. (It seems hard for me to believe that an interest rate adjustment would be so severe that it would prevent someone from making their payments, but that's what the borrowers allegedly claim.) Maybe this is too many detailed examples, but suffice it to say that a lot of stupid mortgage products were offered by mortgage companies (and accepted by borrowers).

INVESTORS -- In their quest to make a "fast buck", investors bought up tons of these mortgages since these riskier "sub-prime" loans brought higher returns (higher interest rates). These investors should have performed a "due diligence" on the loans they bought; but they didn't. When investors purchase loans, there is usually (if not always) a "buyback" provision. This means that if a loan goes bad and the investor finds that there was some irregularity in the underwriting (the loan decisioning process) that the mortgage company who sold them the loan is required to "buy back" the loan. The problem is that most mortgage companies are "cash poor" (meaning that they borrow the cash that they lend from a "warehouse lender" temporarily until they can sell the loan to an investor and pay back their warehouse lender). So when these loans started going bad (hundreds of millions of dollars worth!), the investors demanded the mortgage companies buy back the loans (according to their agreement). So mortgage companies were now looking at buying millions and millions of dollars worth of loans back when they had little or no money of their own! So what happened? Countless mortgage companies declared bankruptcy. With all of the hullaballoo around bad mortgages, investors decided to stop buying sub-prime mortgages. Since there was nobody buying these mortgages and since mortgage companies don't have their own cash, mortgage companies found that they could no longer make these sub-prime loans. The sub-prime market dried up almost instantly.

RATING AGENCIES -- The job of rating agencies is to investigate the creditworthiness of investments (many of which included mortgage debt). These agencies did not do their due diligence and ended up giving these investments an artificially high rating. So investors thought the investments were less risky than they were. Investors will always buy investments that have a high return and low risk (but obviously they weren't low risk).

THE GOVERNMENT -- The government has always put pressure on mortgage companies to make loans to poor and/or minority borrowers. Because these borrowers typically have worse credit and/or less income and/or greater debt, they had to go to the "sub-prime" market to get a mortgage loan. Is it so hard to imagine that a borrower with less income, more debt and bad payment habits will default on a loan (especially when they've put little or no money down)? Of course not. But the government continues to "wish away" laws of basic economics and common sense. In order to "do right" by poor people and minorities, the government expected mortgage companies suspend their normal sound underwriting guidelines and business sense. (Obviously, the sub-prime problem goes beyond just poor borrowers, but my point is that the government contributed to the crisis to some extent.) The government is now poised and ready to exacerbate the crisis beyond what it is now by "freezing" interest rate adjustments. Here is an illustration of the problem: Let's say you have $5000 in cash. I'm a bank and I tell you that if you deposit your $5000 with me that I will pay you 1% during the first 2 years but then I will pay you 7% after those 2 years. So you deposit your money at the low rate of interest. After two years (when you're about to get your higher interest rate), the government comes in and says, "Sorry. You're not getting your 7% as promised. In fact, you can't take your money out of that bank; you must leave it there and only collect 1% for another 10 years." What will happen when you have another $5000 to deposit? Will you put it in my bank? Absolutely not.

Bill O'Reilly flips out on Barney Frank - BANKING CRISIS mad screaming match