Sub Prime Mortgages
Can anyone explain what a Sub Prime Mortgage is?
I wish Hairy was here.
Ha! I never thought I would say that!
I wish Hairy was here.
Ha! I never thought I would say that!
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quote:Originally posted by Captplaid
Can anyone explain what a Sub Prime Mortgage is?
I wish Hairy was here.
Ha! I never thought I would say that!
I'm NO expert, but a sub-prime loan is a loan to a person who is deemed to have a higher-than-normal risk of defaulting. So a sub-prime mortgage is a mortgage loan to a person with crappy credit. Because the loan comes with high risks, it also comes with high interest.
The trouble lately is that a lot of sub-prime lenders failed to acknowledge the risk they were accepting and further, failed to verify the incomes of the sub-prime borrowers they were backing. So a sub-prime borrower would walk in and say: "I earn $100K per year!" and the lenders were taking that info at face value. It turns out that on average, sub-prime borrowers were stating incomes that were about 60% inflated.
All in all, the short answer to your question would get this thread poofed in a hurry.0 -
Actually, the definition is not agreed upon. Some lenders classify a lone as "sub prime" even if the credit score is 660 or higher if the buyer puts less than 5% down or can't document all of his assets or income where other lenders would classify those as "Alt-A" loans. That's why it's hard to judge how deep this problem with the economy goes because nobody can agree on how much money we're actually talking about. 0 -
quote:Originally posted by idsman75
Actually, the definition is not agreed upon. Some lenders classify a lone as "sub prime" even if the credit score is 660 or higher if the buyer puts less than 5% down or can't document all of his assets or income.
My credit score is 700 Is that good?0 -
Sounds like a slick idea to me. Make a loan and sell it off before it defualts.
That how it works?
Sub prime implies interest rates below th prime rate. Which is illogical.
I was guessing it was something wth an unussual adjustable rate or something else unussual that gives people low payments in the first few years, the SHTF.
We're talking about a conventional 30 year loan with PMI given to a bad risk?0 -
FYI, "Alt-A" refers to something that falls between prime and sub-prime.
I'm a geek. My television (when it's on) is almost constantly turned to CNBC. Mad Money rules!0 -
quote:Originally posted by Captplaid
Sounds like a slick idea to me. Make a loan and sell it off before it defualts.
That how it works?
Sub prime implies interest rates below th prime rate. Which is illogical.
I was guessing it was something wth an unussual adjustable rate or something else unussual that gives people low payments in the first few years, the SHTF.
We're talking about a conventional 30 year loan with PMI given to a bad risk?
Sub-prime DOES sound like it should mean something below the prime rate. But I think I'm right on this: sub-prime loans are high-risk loans, and therefore come with high interest rates.
Somebody who REALLY KNOWS, please confirm this or else set me straight!0 -
quote:Originally posted by Captplaid
Sounds like a slick idea to me. Make a loan and sell it off before it defualts.
That how it works?
Sub prime implies interest rates below th prime rate. Which is illogical.
I was guessing it was something wth an unussual adjustable rate or something else unussual that gives people low payments in the first few years, the SHTF.
We're talking about a conventional 30 year loan with PMI given to a bad risk?
The term "sub prime" doesn't refer to the interest rate. It refers to the credit score of the person receiving the loan (i.e. "risk of default"). But, like I said, some people with decent credit scores are considered "sub-prime" based on their ability to document assets or the amount of their down payment.0 -
Sub Prime loans are those made to people who have more than a normal risk level for a mortgage for something like a house. The PC idea is that it allows people who would not normally be able to buy a house to get the opportunity to begin to build equity and get out of the rental trap and cycle. It allows people to start to build something of their own and get a genuine stake in the community.
The rates will be higher and the terms will be tighter, but the offer and the chance are there to get a home of your own.
The reality is that if these are people who are high risk to start with, then the loan itself is a high risk loan and is much more likely to be subject to failure and foreclosure. Some of these are what are considered "Predatory Loans" in that the assumption is that many, if not most, of those who get the loans will eventually fail to be able to pay them off and the mortgage company will be forced/able to foreclose and repossess the property - read resell.
Sub Prime is another one of those "feel good" ideas that have also carried over to the business community in the form of a calculated gamble that the economy and wages will raise enough to compensate for the excess risk level accepted when the loan is issued.
But what the heck do I know, the 7th grade dropouts like our resident 2nd Amendment nut job will be glad to tell you that anyone with an education and some actual knowledge about things like this is just another "sheeple" who can't think for themselves. A couple of years of college and some real training in finance and economics will make anyone stupid.0 -
quote:Originally posted by Zebra
quote:Originally posted by idsman75
Actually, the definition is not agreed upon. Some lenders classify a lone as "sub prime" even if the credit score is 660 or higher if the buyer puts less than 5% down or can't document all of his assets or income.
My credit score is 700 Is that good?
Based on something I heard on NPR within the last two weeks, 700 is a good score, 600 is a marginal score, 550 is borderline unacceptable. 850 would be a lender's wet dream, from what I gathered.0 -
Sub prime loans are made to a lot of folks that have NEVER paid a bill on time. 0 -
Thanks dlrjj and everyone. That explains a lot. I also never really understood much os the "credit score" mania. Seemed to me the basic ratios were more relevant. Percent down, payment to income raio, and such.
I guess every 20 or 30 years a cycle comes around in the real estate market. Young people have to learn some things for themselves and not over inflate real estate values and artifiacally high net worth statements. I grew up learning that lesson in farm ground from the late 70's.0 -
Speaking of paying bills on time. I had a Capital One card that I carried in my wallet. I used it once to buy a bunch of things before my deployment to Iraq. A few weeks later my back-pay hit my account for a mistake that the Army made with my paycheck. I paid the darn card off right away and even did it by telephone using the routing number and account number for my checking account. They told me that I was completely paid off and didn't have to worry about a thing. I didn't want to have a balance before I deployed. I was in Iraq for 2 months and a piece of mail finally caught up to me. It was a 2 month late pay notice for a freaking $20 transaction fee associated with the telephone bill pay that I did for the card! The lady told me that I was all paid off and nobody mentioned a transaction fee. Well, $20 became $60 in that two month timeframe. I sent them a check and a letter of complaint. I got a response that basically said "tough luck" and I wasn't in much of a position to fight it being that I was in Iraq and all.
I got my credit report a few months ago and it's the only late pay on my credit record and it really ticks me off.0 -
quote:Originally posted by bpost1958
Sub prime loans are made to a lot of folks that have NEVER paid a bill on time.
Yep, and lots of speculation by folks who shouldn't have been taking out loans. Everybody wanted to "flip this house" and make a quick buck.0 -
From what I understanding reading about the market currently, is that the real reason for these loans to be failing is two or three fold. First off they are high risk loans and people having to use to much of a % of their income to cover the loan cost. What has happened is that prime as went up, causing the loan interest to go up making the amount due higher then what people can afford to pay. Top that off with a housing market that is horrible, you have an overvalued home that you are making payments on with zero equity house.
Being a young person myself, if I was faced with a similar situation, and I was only into the loan a couple of years, say only 20-30 grand into it. I would probably walk away from the loan and cut my loses as a poor investment. This is exactly what some people are doing. Creating a high rise in foreclosures.0 -
Glad to give you a bit of information, and if I can be of more help, just ask. This kind of stuff is what I actually do, and there is a reality to it, regardless of what the tinfoil addicts "think" (that's a joke). 0 -
Sub Prime Loans are also called B/C Loans. A prime loan is an A Loan. Many people can fall into the "sub prime" category based on things other than credit score. It is based a little more on layered risk. Meaning how risky is it going to be to loan money to that certain person. I have seen people who have a "sub prime" credit score, which used to be between 500 and 620, qualify for prime loans through programs called Expanded Approval. Due to recent guideline changes at the company I work for, Countrywide Home Loans, 540 is now the minimum. Guidelines are getting to where they should have been. Loans were being written for people who never should have been approved for mortgages, but investors would buy the mortgage backed securities, so the loans were still being written. Interest rates are actually getting better however it is much harder to be approved for a mortgage. 0 -
quote:Originally posted by idsman75
Speaking of paying bills on time. I had a Capital One card that I carried in my wallet. I used it once to buy a bunch of things before my deployment to Iraq. A few weeks later my back-pay hit my account for a mistake that the Army made with my paycheck. I paid the darn card off right away and even did it by telephone using the routing number and account number for my checking account. They told me that I was completely paid off and didn't have to worry about a thing. I didn't want to have a balance before I deployed. I was in Iraq for 2 months and a piece of mail finally caught up to me. It was a 2 month late pay notice for a freaking $20 transaction fee associated with the telephone bill pay that I did for the card! The lady told me that I was all paid off and nobody mentioned a transaction fee. Well, $20 became $60 in that two month timeframe. I sent them a check and a letter of complaint. I got a response that basically said "tough luck" and I wasn't in much of a position to fight it being that I was in Iraq and all.
I got my credit report a few months ago and it's the only late pay on my credit record and it really ticks me off.
In this case you can send a letter of explanation to the credit rating companies and ask them to attach it to your report. However, 1 late payment really shouldn't hurt your score too much.
As for the original question:
Sub prime loans are made for a variety of reasons already mentioned. Lots of "sub prime" loans were made as adjustables, with a low initial rate, so the borrower could qualify to borrow more money. The typical question brokers would ask people applying for these loans was "do you think you'll be making more money in the future?" DUH. What people failed to realize is that when their rate bumps, their income has in no way bumped as much to keep the payment affordable. Often times people assumed they would just be able to refinance to another loan to avoid the bump. Housing prices are dropping and without any equity people aren't able to refinance anymore.
720 is a good score. Anything over 800 and the lender will pretty much ask you how much you want to borrow. I know [:)]. Below 720 and different lenders will classify you differently from bad to worse.
Someone said they thought income and debt ratios would play a bigger role in the lending decision. This isn't usually true. Many people who make a good living and little debt have really bad bill paying habits. A lender incurs cost every time they have to send you a reminder to pay or make a phone call. Why do you think they report late payments? If you pay everything on time and maintain a great rating you will be allowed the privelege to borrow a larger portion of your income.
And that's my full 2 cents...0 -
I've been a little nervous about all this CountryWide talk on the news. We make our house note and have a fixed 5.7 interest rate. I'm not sure how that would affect us if Countrywide went belly up because that is who our loan is through. 0 -
Kodiakk you don't have anything to worry about. Countrywide is going nowhere. All the so called experts are speculating that we are having problems because we got rid of most of our lines of credit. The reason we did so was planned. It was a strategic move that we had planned on doing next year anyway. Countrywide has the 7th largest bank in the nation. Yes I said bank. With only 150 locations nationwide. Our bank is now our line of credit. We no longer need it from anyone else. Also if we were going under do you think Bank of America would have invested 2 BILLION...yes I said 2 BILLION dollars in Countrywide. Countrywide, unlike most of these other mortgage companies, has the diversification to withstand this kind of hit the mortgage industry is taking right now. As far as I know we are about the only lender that is even writing sub prime loans at the moment. We will make it out of this fiasco and be one of the few lenders left. 0 -
Banco de Opportunidad invested 2 Billion and Warren Buffett has been eyeballing Countrywide as well. These Warren Buffett rumors wouldn't exist if Countrywide didn't show potential for growth. 0 -
I figured Banko of the Americas was doing a classic move to attempt to get there foot in the door of Countrywide, in an attempt for a possible merger/takeover in the future. Next, BoA has "advisers" telling Countrywide how to run their buisiness. Then they form a joint venture or a LLC. Then Boa just takes it over. 0 -
That wouldn't surprise me either CAPTPLAID. They keep saying it won't happen but watching our CEO sell off a ton of his stock makes me wonder. B of A already has as much of their share of the mortgage market as they can. That's the one problem I see. The SEC would have something to say about that merger or takeover I am sure. 0 -
The thing I never understood about sub-prime loans.
Is you get them because your credit history and income don't justify on paper your ability to make a monthly payment at the amount you would be required to pay with a prime rate loan...
But you can get a sub-prime loan with high interst that makes your monthy mortgage substantially more than with a prime.
So what they are basicly telling you is, you can't afford 1000$ a month payment for 30 years. so no loan.....
but if your willing to pay 1500$ a month we will give you the loan at this crap intrest..
Sub prime loans are like credit cards, if you know how to use them you can make them work to your advantage,
if you don't you can financially cut your own throat with them.0 -
In the last ten years Ive had 19 different home loans, some prime some sub-prime, most sub-prime. Ive been around the block several times, so to speak. Ive dealt with allot of different lenders.
And personal oppinion, The lender that I have used the most and like the most is countrywide.
Just my opinion based on experience.
SOME Times you need to take the sub-prime if you can afford it monthly just to get into the house, as long as you know you can make the payments, and also to get into a loan that allows you refi to a prime loan later.0 -
Divebomb.....the reason for subprime loans is because some people show a greater credit risk. Meaning they have shown in the past an inability to keep up with their bills. If you qualify for a prime loan there is NO reason to go subprime. Prime loans have better interest rates and lower closing costs. 0 -
A subprime mortgaage is any dat blamed house loan that I signed. Damn straight 0 -
quote:Originally posted by Kodiakk
I've been a little nervous about all this CountryWide talk on the news. We make our house note and have a fixed 5.7 interest rate. I'm not sure how that would affect us if Countrywide went belly up because that is who our loan is through.
If they went belly up your note would be bundled and sold to the highest bidder. The terms and your payment would remain exactly the same. Your payment would probably need to be sent to someone else unless their payment center continued to "service" the loan (receive payments). Not need to worry.0
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