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Are Sub-Prime Mortgage Problems Finally On Their Way Out?

dgreen — Wed, 02 Jul 2008 16:02:50 +0000

In the summer of 2005, sub-prime mortgage lending was at its peak. Rates were relatively low and lending guidelines were relatively loose.

At the time, the “standard” sub-prime mortgage product was the 3/27 ARM.

The 3/27 had a few basic traits:
1. A fixed, 3-year “starter rate”
2. Every six months thereafter, the mortgage rate changed
3. The formula by which it changed was (4.999 percent + the 6-month LIBOR rate)

Because the summer of 2005 was the peak of sub-prime lending, it makes sense that the summer of 2008 is the peak of sub-prime adjusting.

For homeowners with adjusting sub-prime loans, there is some (relative) good news out there.

Today, the 6-month LIBOR hovers near 3.15 percent, meaning that an adjusted mortgage rate will be in the neighborhood of 8.15 percent.

This is versus the rate of 10.30 percent that sub-prime borrowers faced last summer when LIBOR was much higher than it is today.

Adjustments of any size can strain a household budget, though, so if you’re a sub-prime borrower and your pending adjustment will cause financial strife, be proactive — talk to your lender before you miss a payment.

Lenders are often more willing to talk with “current” borrowers than with delinquent ones.

(Image courtesy: Washington Post)

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Word of the Day

lowusu — Tue, 08 Apr 2008 14:24:05 +0000

The media has a way of shaping our thoughts, and our imagination. If you listen to the news long enough you will think we are headed for living in a cave. Subprime, Credit crunch, housing bubble, exotic-ARM, Jumbo, write down, blah, blah, blah.

Buzzwords are all the rage in the media and our mortgage industry is the new red-headed step child.

You need a dictionary just to keep up with the news cast and you can’t go anywhere in public without an overnight expert telling you how we are headed for financial Armageddon. Every industry is cyclical and we often forget that but the masses need something to complain about so until the all-knowing media personalities feel that we need to improve our vocabulary keep your pencils sharp and your dictionaries handy.

PS (If you never hear from me again it’s because my girlfriend, who is a TV reporter, has disposed of my body.)

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SubPrime Mess

amirhsyed — Tue, 25 Mar 2008 17:34:17 +0000

What really happened with subprime? Why does my mom ask me every week, “Are you a bad subprimer mortgage person?” The sad part is, that in 2005, someone with a 560 FICO was getting 100% financing on a $400,000 house without a job. “Bad subprimer mortgage persons” would simple make a job up out of no where and state an exuberant income that a bank would not verify. “On your application, Mr. Borrower, you are not a busboy at Lupe’s Restaurant, but the ‘Waiter’s Head Assistant’ making $7,000 monthly”. Now here is the irony…

Just recently, we had a borrower with a 795 FICO score, wanted a 15 year mortgage, didn’t need any cash and has $800,000 in assets! But nooooo, he could not get a loan because he just recently decided to become self-employed after working for Motorola for 20 years. Unbelievable! GO FIGURE (http://www.goofigure.com/).

Another day in the mortgage world!

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