If you have credit problems in your past and a low credit score, if you decide you want to refinance or get a home equity loan, you will probably need to work with a subprime mortgage lender. Subprime mortgage lenders are willing to work with those with lower credit scores and past credit problems. They charge interest rates that are slightly higher than the prime rate. When you work with a suprime lender, you will need to be careful of a few things. Subprime mortgage lenders sometimes take advantage of borrowers with poor credit and charge excessive fees or offer terms that are not reasonable.
Be careful of these things when applying for a new refinance or home equity loan:
1. Watch Out For The Pre-Payment Penalty – Most sub-prime mortgage loans have a pre-payment penalty attached. That means that if you decide to either sell your home or refinance your home anytime within the designated period of time, you will have to pay a penalty which is usually equal to about 6 months of interest or mortgage payments. If you are ok with a pre-payment penalty, make sure you know exactly how long that allotted amount of time is and exactly how much the penalty is. A penalty is usually for anywhere from 6 months to 2 years. But, a penalty that is two years or longer, in some cases, might be considered excessive.
2. Watch Out For Junk Fees – Many times in sub prime mortgage loans, a broker will tack on excessive fees that are not completely necessary. Have your mortgage broker go through all of the fees one by one and make sure you understand where all the fees are going. Educate yourself on what fees are completely necessary and which ones are not. Go to http://www.mortgagesanity.com for a list of junk fees that sometimes get added to mortgage loans. Also, educate yourself on the average cost of such fees to avoid being charged an excessive amount.
CL Haehl
http://www.articlesbase.com/finance-articles/subprime-mortgage-refinance-and-subprime-home-equity-loans-116707.html
Comments
Do people realize that its an error to blame this economic mess on Subprime lending?
he fact is subprime lending was a good idea (helping people with lower fico scores if they had enough income). The dangerous part was the ARM and Option Arm Lending. About 80% of subprime mortgages are good…and still good. This financial mess we’re in was influenced by lax regulation in giving out ARM’s (Adjustable Rate Mortgages).
I find it sad to see the media blame folks with subprime loans for this mess, when the issue is really the ease at which lending institutions gave out ARM loans because they felt home prices would continue to rise forever, and when that didn’t happen and people mortgage payments adjusted and they couldn’t refinance due to lack of equity the whole system crashed and they blame the borrowers. Just despicable.
Anyone have any insight on this situation?
i worked in lending for years so theres plenty of GOOD people who take out ARM loans because they usually figure they can save money now and when it starts adjusting upward they can refi to fixed payment. Many MANY people are interested in that even people with fantastic scores and income.
they adjust according to the index they are based on, such as the LIBOR (London Interbank Offered Rate) which isn’t predictable.
People generally walk away from their second home, not where they live full time.
It costs the bank money to foreclose…they don’t want to do that, and they simply can’t refinance every loan so they take the chance to resell and stem their loses.
Ruth- Prime Rates change per person (income and fico) and also the TYPE of loan you are taking out. There is not STANDARD rate. There is a base rate which then changes to a final rate depending on the persons financial standing (risk).
Ruth- I worked in California, not florida so i can’t speak 1st hand about that situation. However people do take out ARM’s with the intent on saving money and the idea of refinancing as values increase. There are people who do take ARM’s when the payments are too much for them….but thats where LAX regulations caused the problem. Mortgage underwriters are watchful of that but they HAVE to follow the rules given to them.
I blame it on the lack of oversight of Fannie Mae and Freddie Mac which is a piggy bank for Democrats.
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i think corporate greed and risky investments are to blame. not the average person who wanted to buy a house, and have a low payment.and btw, i can’t sell my house now.
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True
That is what happens when government starts trying to over control business. They screw up prices, and the economy and in reality it is a scheme to control the populous and make us all bankrupt. (Even if you do not have a loan).
We have been playing with monopoly money, a debt based fiat dollar based on producing wheat, insurance policies and law suits. Perish the thought of how we are going to pay the Chinese back with our "domestic" product in the form of homes inside our boarders.
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why did the interest rate go up on the ARM’s?
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You’re separating out different kinds of sub-prime lending. Ask yourself what American family with good credit and enough income took out an ARM loan?
Not enough attention is being paid to the root of the problem, in my opinion, which is the "morality of the contract." When a society is not free to contract (and be subsequently responsible for the deal) and does not uphold the morality of a contract, the society is not free.
But, if the banks would have voluntarily restructured these loans, rather than foreclosing on the homes and selling them for pennies on the dollar, we’d at least be able to distinguish between the true ones who "are losing their homes" and the ones who are just walking away from a bad deal (who deserve no help).
Edit: The interest rates for fixed loans were 5% in 2004 when I took out mine. I simply do not believe you.
Edit (again): For a person who claims to have worked in the mortgage industry, you lack an understanding of what is going on in the worst hit markets (FL, for example). With fixed rates as low as they have been, the ONLY reason a person would have risked an ARM is if they were buying too much house.
Edit (again): Well, I would sure be happy to see ONE Democrat address the issue of the "morality of the contract," which, btw, is not about religion, it is about contract law.
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Subprime lending was a good idea, but typically, corporations push it to the limit.
A friend of mine bought a house in the late 90s. His payments were 800.00 a month. When it was repo’ed at the beginning of this year, both he and his wife were working 2 fulltime jobs (apiece) and their payments were over 4000.00 dollars a month. There was no way they could make that payment.
When I read his mortgage, it basically said that the lender could raise the payments as much as they wanted. I asked him why he even signed it. He said he "trusted them" because they were giving him money for a home.
I say let the lenders take a dive, and bail out the bad mortgages.
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Not sure, but hasn’t the prime rate gone down over and over since? Exactly how is it that a lower interest rate caused this?
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It was a combination of people taking ARM mortgages they had no way of paying for three years down the road and the finance companies giving loans at 100% of home values with no chance of recovering their investment upon default.
The government could have fixed the whole problem if they had started earlier and just simply bought the bad mortgages and locked them in at normal bank rates. It actually would have been a profit for the government and maybe they could have thrown a little money in that joke they call social security.
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We do not simply blame it on the Democrat’s subprime mortgage lending. It was, however, the straw that broke the camel’s back. It took massive stupidity, corruption and greedy pigs in the U.S. Congress and the White House to bring this all about.
But most voters want all the culpable legislators and banksters etc. to get what they deserve. Whether the robbers came in the front door of the bank with guns or the bookkeepers inside take the money, the GD bank got robbed! Worse yet, the money is gone and they charged up trillions in debt against the bank. Just because there is no dead bodies or a smoking gun, they did it! And there must be justice. It must be extensive and they must all pay.
It seems clear to some of us that Obama and his backers will block justice. Otherwise, they will be caught up in the investigation and revealations. Obama will never allow that to happen. They must get Obama elected or they are ruined. They are now desperate to push Obama into office. They will use their allies in the "news" media, the funders, and anything they can do to make certain Obama wins. That is obvious to anyone who is not blinded by the "hope and change" mantra.
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The writing on the wall.
yep, you nailed it, when i refinanced they tried every trick in the book, and then some to get me to sign on the line for an ARM, but my sister lost her home because of exactly what you have just stated here,
so i knew better than to fall for it~!!!
BUT THEY WERE PREYING ON THE UNINFORMED FIRST-TIME BUYERS, AND USING ILLEGAL TRICKS AND TACTICS TO DO IT~!!!
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pizzballpete!
Nothing whatsoever to do with mortgages!!
So many wars started by one president resulting in trillions having been spent and continuing to be spent!!
Massive national debt and continuing to grow!!
But above all the gift given to the terrorists by devaluing the dollar after 9/11 that it has been unable to recover from!!
So short answer is George W Bush. The sooner he goes and we get even a three year old child to run the country the more hope we have!!
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No. The people listen to the liberal bias media elite and trust the spin coming out of the news room. It is presented in a deliberate fashion as to deceive the people into believing the manipulation. The media want you to vote for the party that will give them more power to control their bias views.
There are so many different reasons for the economic mess we are in and the blame starts with both houses of Congress! The Dems and Reps are both out to get the most money they can get.
Have you ever heard of a member of congress that is not a millionaire? The laws Congress passes are not in the best interest of the people. Laws are passed to gain favor or money for one lobbying group or business interest.
The Economic mess was a direct effect of Mr. Rains being allowed to change the rules of how he and the upper management was paid on loans. Barney Frank and Chris Dodd for political donations changed the laws so money was paid to Rains for the amount of loans they bought, not the good loans that were paid. This opened the door for corruption. Rains and wall street bought these bad loans now because they knew they would be walking away with 100s of millions after they retired or the business was run into the ground.
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As you mentioned, the ARM mortages have a great deal to do with the problem. But why where these given without credit checks to begin with, by fly-by-night mortgage companies?
Because they wanted to make their fees, and dump the rick on Fanie Mae and Freddie Mac. All they had to do is get the person to sign and sell it to the GSEs.
If it wasn’t for this:
http://www.govtrack.us/congress/bill.xpd?bill=s106-900
We wouldn’t have this problem.
Some of the creditors giving ARMS also thought they were going to be able to make some money of the people could afford them, then forclose and resell making even more.
Didn’t work that way.
Then it didn’t help that regulators where given less power in 1999 to actually do their jobs.
ARMs where being sold to Fannie and Freddie that were in violating of their standards. They were just being flooded with them by banks that wanted to make the profit but not keep the risk.
Even then people who weren’t given ARMs coud afford their loans until high fuel prices and high food prices hit them, causing them to default.
TO blame this mess on banks giving loans to people who shouldn’t have been given loans is highly inaccurate. Even upper middle class people took out ARMS having no clue that their payments where goin gto double in 6 months. They figured the interest may fluctuate a little so they may have had to pay $20 or 30 dollars more, not jump from $300 a month to $1800 a month.
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tripled gas/fuel prices allowed/encouraged by Bush are the main culprit here shady bankers are also at fault
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Subprime lending was welcomed with open arms when Wall Street figured out how much money they could make on "Asset Backed Securities". Investor speculation and the irrational exuberance that fed the housing boom spread far beyond the original intentions of the Subprime executives expectations.. The lending guidelines were greatly relaxed at the insistence of the major Wall Street firms due to greed and stupidity.. There’s a lot of blame to go around but I blame the ignorance and greed of Wall Street the most for the "Perfect Storm" we’re going through now.
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Handled properly, the housing boom could have been a wonderful boon to our economy and to our society instead of our undoing.
The republicans and the moralists (hello Ruth) want to point fingers for political points but the real driver of this fiasco was greed.
Once Bear Steans with their Roof Top Mortgage and the other lenders, flush with freshly recycled Chinese and Arab Dollars took aim, it was only a matter of time until the system crashed.
Once Bear Stears, Countrywide, and Bank of America dispatched their legions of commissioned loan brokers to all corners of the land and offered anyone with a pulse a loan, housing prices exploded. Ordinary people began to feel that if they did not buy a house now that this would be their last chance.
And the realtors piled on. I recall an internet ad for a Florida property which had a meter clicking, showing how much the value was rising per minute.Insane.
No. Irresponsible home buyers are not to blame and we all know it, whether some will admit it or not. I will have to leave the question of ARM’s to you and Ruth to decide. But most all people will pay their house payments if at all possible.
A torrent of greed on the part of the lenders is the major cause of this and we all know it. The lenders were the whores and their agents their pimps. And we all know what happens to us when the pimps and whores show up. We get ………!
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