 | Randy Vickers is the owner of Priority Mortgage Corp of Wichita, which opened in Jan. 1989, is the oldest locally owned mortgage company in Wichita. Randy has been in the real state business since 1983 and is a licensed real estate broker as well as a licensed mortgage broker. Priority Mortgage Corp of Wichita KS Lic #1996-0122. Randy can be reached at 316-721-7700 |
Real Estate
2007-04-01 08:09:00
What is a ‘sub-prime’ loan?
What is a ‘sub-prime' loan and what is all this about?
ANSWER: In the glory days of really low interest rates and really high home appreciation, lenders began to create a second tier of loans for borrowers who couldn’t meet the standard lending guidelines. In the last 5-7 years, these programs have exploded to the point that almost everybody could buy a home. The upside to this was that housing was very strong and the percentage of Americans able to buy a house was higher than ever. The downside is that many of these second tier borrowers are not able to pay for their homes and foreclosure rates have skyrocketed.
These programs were available to borrowers with marginal credit or income that could not be verified. Therefore the interest rates were generally adjustable and at higher rates than conforming loan programs. As more and more of these loans are making adjustments to higher rates, the borrowers are finding it is very hard or impossible to make the required house payments. Many of these borrowers also used programs that allowed little or no down-payment and now have no equity in the home. When these loans are made it is with the hope that the borrower can make some changes in their life to get them back into a conforming loan in the future. Better documentation of income, credit repair, and saving additional down-payment are typical things that a borrower will work on to improve their chance of a better rate and better terms. Many borrowers accomplished these things and have refinanced their ‘sub-prime’ loans into a conforming product, but those who still have the high rate adjustable loans are starting to feel the pain, which leads to loans that perform poorly.
As a participant in the mortgage business for more than 18 years, the author has seen many loan programs come and go. Today there are still many very good programs that allow a person to buy a home. Some of the borrowers who could buy a home a year ago, now may have to take a little time to upgrade their application. In many cases this is mainly about repairing credit issues that are caused by a variety of situations. As has been stated before it is now more important than ever to keep track of the information on your credit report. All kinds of loans are graded or rated by your credit score, and a poor credit score will result in higher interest rates or the inability to borrow money. Last month we talked about getting pre-approved before looking at houses with your Realtor. If you have a problem on your credit report it will become apparent in this process and usually prevent an embarrassing moment.
Like all major financial decisions, buying a home or refinancing a home takes some planning and research. If you are currently in a mortgage that has adjusted or is getting ready to adjust, it would be a good time to review your options with a mortgage professional. Trillions of dollars of adjustable rate mortgages are coming up this year, so don’t be the last to look into your situation and see if a better loan program is available.
Until next month…
