What is the profile of the person who defaulted on his loan in the subprime mortgage debacle?

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  1. Reply
    v b
    February 1, 2011 at 10:57 am

    I think there are *many* profiles.

    Some people bought more house than they could afford with *help* from the brokers who fudged the math by making up numbers for income. Many brokers said that the appreciated value of the house would make up for any increases in the ARM rate…and so would wage raises.

    Some people thought they were house rich and refinanced, spent the money and then couldn’t pay it back.

    Some people tried to move on and rent the first house rather than just sell it and then discovered that they’d waited so long they couldn’t sell and couldn’t find a tenant either.

    Some people heard that real estate was the way to get rich and bought second homes to flip, rent or invest in. All found out that it wasn’t as easy as it looked….

  2. Reply
    February 1, 2011 at 11:11 am

    If this is you, you were more than likely robbed by a greedy loan officer.

    Loan officers nowadays understand why this crisis happened and are taking it seriously to prevent it from happening again.

    If you defaulted right after your loan adjusted, they will forgive you. For sure.

    Refinance and get out of that mess! It’s a disgrace to the American dream. Don’t become another foreclosure statistic.

  3. Reply
    February 1, 2011 at 12:09 pm

    subprime loans are for people with little or no credit.

    if you use them then you will be charge an outrageous interest rate.

    bad idea.


  4. Reply
    February 1, 2011 at 12:19 pm

    Your question is actually quite complicated. A Subprime loan is for those with less than perfect credit or what may be called B or C credit history. Subprime deals have gotten many folks in trouble and for others been a very viable option. “Your” answer is dependant on three main factors.

    Firstly your ability to make the payments required now and in the future. The best indicator of this is called DTI or debt to income ratio. The simple formula to caluclate this one is add up all of your monthly recurring debt, your new mortgage payment with taxes and insurance, car loans, student loans, personal loans and credit cards and then divide that total by your monthly gross income. This percentage or ratio for most subprime lenders to make a loan is less than 50%. I recommend you try to keep your DTI ratio at 40% or below if at all possible or risk becoming house poor. You have great home but cannot afford to furnish it. If the proposed loan is an ARM or Adjustable Rate Mortgage make sure you can still cover the payment as the rate increases over time. ARM rate increases are the number one cause of foreclosures on subprime loans.

    Secondly in my mind is can you afford to not get the loan? If you are trying to save your current home or purchase a home in an appreciating market the higher rate may be worth it. Can you save money by buying rather than renting? If you are attempting to simply consolidate debt you may lower your overall monthly payments now but now you will pay for that TV or last weeks tank of gas for the next 30 or so years.

    Thr third major factor falls on the quality of the loan and the lender. Rate, term, type and the cost of acquring this loan all have to be considered. Be leary of ARM’s and Interest Only type loans but do not totally dismiss them. How much will the loan cost you upfront. I would pass on any loan that ate up my nest egg or crippled my equity position in an existing home. Look at the lenders costs closely. A loan can be completed for around 2% of the loan amount in most cases with all fees included. I have seen loans cost others up to 7% of the loan amount while the loan officer lined their pockets.

    In closing this is a question you have to answer for yourself. I hope this gave you some insight into the factors that I would consider before signing a subprime loan. Shop around and let lenders know you plan to do so. They are more apt to start with their best offer. Pick no more than 3 to look at your credit as 25 lenders hitting your credit never seems good for ones credit scores. Good luck!

  5. Reply
    February 1, 2011 at 1:09 pm

    A sub prime mortgage or non prime as it’s called these days is for those with less than perfect or bad credit. These loans can be good and bad. They usually have a much higher rate attached to them, so most people automatically assume that they are bad. However, these loans do serve a purpose to those in bad situations.

    An example of how a sub prime loan is a good thing is when someone just went through a messy divorce, and their credit has gone down but they have equity in the home and are able to save their home from foreclosure. Once they make their payments on time for the next couple years, (all their payments), they can refinance to a lower rate once their credit has repaired itself. This is only a good thing if both the borrower and the mortgage broker know that the rate is not too high for the borrower to pay for the next two years.

    The problem is that, many people get these mortgages thinking that they will be able to make the payments for the next couple years and it becomes more of a burden for them, and they end up getting foreclosed on. Too many mortgage brokers sell the idea that this is a band-aid loan, (a temporary loan to stop the bleeding now), and borrowers buy this idea without thinking things through. Obviously, this is the example of the sub prime mortgage being a bad idea.

    As long as the mortgage broker explains everything up front to the borrower, and everyone knows exactly what is expected, the sub prime mortgage can be a good thing. It’s just that, these days, too many brokers are just out to make a quick buck and end up lining their pockets with gold while the borrower goes further into debt that they can’t pay.

    When thinking about a sub prime mortgage, make sure that it is your only alternative and that whomever you are going through fully discloses all your options so you can make an educated decision for yourself.

    Good luck with everything.

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