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Archive for the ‘Subprime Mortgages’ Category

If you have bad credit history, no down payment or difficult to prove income and are looking to get approved for a home mortgage loan, you will probably need to look at subprime mortgage lenders to help you. To see a list of our recommended subprime mortgage lenders you can click on the link below.

There are a few things to know about subprime mortgages lenders. They specialize in providing mortgage loans for people with less than ideal situations, whether it be difficult to prove income, low or poor credit scores (most often the case with subprime mortgages), or no down payment (this factor alone will not necessarily put you in the subprime loan category).

The interest rate on a subprime mortgage loans will be higher than any other type of mortgage loan where credit, income and down payment are all optimal. However, with subprime mortgage loans, as a borrower, you need to be careful about a few things when dealing with subprime mortgage lenders.

The interest rate with subprime mortgages can vary greatly. There are some subprime mortgage lenders that, for the same set of qualifications, can offer an interest rate of say, 7%, which is a little above average, and then there will be others who will quote 9-12% or more. Now, if this is all for the same qualifications, you could be talking about hundreds of dollars a month extra in payments just because you are not getting a fair interest rate for your qualification. This is where the borrower needs to be careful. Make sure you are getting the best interest rate possible with your subprime lender. Some subprime lenders take advantage of borrowers with bad credit or hard to approve situations, and they charge much more in interest than what is fair for to the borrower.

Another way subprime mortgage lenders can take advantage of unsuspecting borrowers is by the lender having a pre-payment penalty on the loan that is unreasonable and not fair to the borrower, based on their qualifications. A typical subprime mortgage loan will have a 6 month to a 2 year pre-payment penalty. However, sometimes a subprime lender will offer a loan with a 3 year or higher pre-payment penalty. That is too high, I think a 2 year pre-payment penalty is high, but any higher than that, and you should probably keep looking for a new lender.

Other than a couple of things to be careful of when dealing with subprime lenders, getting approved, even with a slightly higher interest rate, can be a really great thing for you to buy the home you want.

To see our list of recommended subprime mortgage lenders, visit this page: Recommended
Subprime Mortgage Lenders

More and more states, counties and cities are passing laws to help people facing foreclosure save their homes. One of the most recent was the state of New York.

In August of 2008 the legislature in New York passed a law which created a mandatory Foreclosure Settlement Conference Program. This law only covered citizens of New York who had subprime mortgages and were facing foreclosure.

On December 15, 2009, the governor of New York, David Patterson, signed into law a bill which expanded this program to cover all people in the state who were facing foreclosure. This new law expanded the reforms in the original law passed in 2008. The significant provisions of the law are:

Lenders must send a 90 day pre-foreclosure notice to every person facing foreclosure. This gives people more time to work with their lenders and to find a solution to stop the foreclosure.

Within 3 days of sending the pre-foreclosure notice, each lender must not New York’s Banking Department that the notice was sent. This enables the Banking Department the Division of Housing and Community Renewal to do two things. First they can offer help to distressed homeowners during the ninety day period. Second they track and closely monitor the foreclosure action in the state.

Mandatory Foreclosure Settlement Conferences are now required on all cases where people are facing foreclosure.

People who rent homes which are foreclosed are to be notified of the change in ownership of the home. They also can remain in their homes for the remaining time on their lease or ninety days, whichever is longer.

Lenders or other plaintiffs who acquire a property through foreclosure have to maintain it.

People facing foreclosure are protected from loan modification scams. Brokers and companies offering help to them cannot charge upfront fees.

While this new law should help people facing foreclosure save their homes, there are certain problems which may prevent it from being as effective as it could be.

The first is that while the Banking Department is being notified by lenders of those people to whom they have sent pre-foreclosure notices and they and the Division of Housing and Community Renewal are offering help, there is no guarantee that all of those who are being sent letters on this are opening them.

Many people in severe financial situations and facing foreclosure avoid opening the mail they are sent. They fear that mail from their lenders or official looking documents don’t have good news in them. So they avoid opening them. They are not aware that some may tell them of help available to them.

Philadelphia was aware that this problem existed. When they started their foreclosure mediation program in 2008, they enlisted the aid of non-profit organizations in the city. Representatives from these organizations made in person visits to people facing foreclosure. They explained the city’s program to them and showed them how the program could help them save their homes. They also worked with them to take the first steps.

In the fall of 2009 Freddie Mac, a government sponsored company to whom mortgage companies sell many mortgages, contracted with a private firm to send representatives out to people facing foreclosure who have mortgages owned by Freddie Mac. The job of these representatives is to make personal contact with these people. When they talk to them they explain how they can request a loan modification from their mortgage company. They also explain what information they will have to provide to their lender.

The second issue with the new law is that there are no penalties for the mortgage companies if they do not comply with the law. Mortgage companies are supposed to send representatives to the mandatory foreclosure settlement conferences. However companies have sent representatives to these who did not have the power to modify mortgages and settle the cases. Representatives have even shown up at conferences without the proper paperwork. In November of 2009 one judge was so frustrated by the actions of OneWest Mortgage on one case that he wiped out the balance the couple involved owed on their mortgage. That total was over $500,000.

OneWest appealed the judge’s ruling. If there were penalties in the law for mortgage companies not following through, the judge’s action would never had occurred.

What impact does this have on you?

If you reside in New York and are facing foreclosure, take advantage of the mandatory settlement conference program. It will help you save your home from foreclosure. Don’t believe that because this program exists, you can represent yourself. Get a lawyer or an advocate skilled in loan modifications to help you.

If you reside in another state, see if there is a mediation program available to you. You can find out by contacting the Bar association in your county. You owe it to yourself and your family to do all that you can to save your home.

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Although there is really no “commercial subprime mortgage” sector like there is in residential, there are 3 types of commercial mortgages programs that are designed for borrowers with difficult situations.

These loan programs include:

1. Stated income commercial loans
2 . Commercial hard money
3. SBA 7a loans.

Commercial Stated Income Loans

Commercial stated Income loans were designed for businesses or investors that do not show enough income on their tax returns to qualify for traditional loans. For example restaurants, automotive repair or other high cash businesses are prime examples of business that often make enough money to support the mortgage debt, but owners often do not report all earned income on their taxes.

The primary benefit of this program compared to other “subprime loans” is longer fixed period, with 20- 30 year amortizations schedules and high leverage (often up to 75% on refinances and even 90% loan to value on purchases).

The negatives include high prepayment penalties and rates are often 2 -5% higher than typical bank financing (though it won’t be available to a borrower that didn’t show enough income on their tax returns to qualify).

Commercial Hard Money

Commercial hard money loans are the ultimate “commercial subprime” loans for investors and occasionally for business owners. Hard money lenders are really interested in properties equity or the properties ability to pay the lender back in case of default. Loan to values rarely exceed 65% and values are often further reduced by tough appraisals.

The primary benefit of hard money is the speed in execution (3 weeks to close is not unusual) and lenders do not generally care about credit scores. The negatives with hard money include interest only rates in the 12-15% range with points in the 3-5% range.

SBA 7a Loans

If hard money loans are the ultimate “subprime loans” for investors, the SBA 7a loans are the ultimate for business owners. Highlights include the ability to refinance up to 90% loan to value, credit scores as low as 500 are acceptable, and debt coverage ratios can be as low as a 1.1 – with the ability to use projections for future income.

Common objection to the SBA 7a program include the floating rate and expensive guarantee fee that the SBA demands. Both of these negative characteristics can be eliminated though, for example there are banks that offer a 5 year fixed version with the ability to roll the guarantee fee into the rate.

Any person alive in the United States of America today who has not heard of a Subprime Mortgage has obviously been living in a cave. Britney Spears is the only thing that has been on the news more than these types of mortgages. The economic collapse of our nation is often placed at the feet of these mortgages that are less than prime.

Now the question is how to capitalize on these mortgages and turn a profit. There are several benefits to focusing on sub prime mortgage leads. First of all, borrowers are less likely to shop your offer. Second, the commission on subprime mortgages can be quite lucrative.

Now, how do you find these people with subprime mortgages who need a new loan? Will it’s relatively easy. Two easy targets are credit agencies and list companies. Next, you must determine what it is you are looking for. First of all, get a list of homeowner’s who have just filed for Chapter 13 bankruptcy. If you get the client you can do a quick cash out refinance and pay off their Chapter 13 and pocket a nice commission. Another good group to look at is people who got a mortgage 2-5 years ago with a sub prime lender. Their pre-payment penalty has expired, and they will be looking to refinance. Find homeowner’s that are 30, 60, or 90 days late on their mortgage. Another good thing to look for is a low credit school.

Combine any number of these things to narrow down your targets. There are plenty of places online that offer subprime mortgage leads. Let’s take a look at a few websites out there and see what they have to offer. There are plenty of scams out there, so make sure that any company you deal with is legit. Since this can be a lucrative business, there are always sharks and scammers out there that are ready to take advantage of you.

There are countless ways to generate sub prime mortgage leads both locally and nationwide. Finding a lead can be as simple as reading about bankruptcies in your local newspaper. Paying for leads via various online companies is also an option. In the end, this business is like any other. The more legwork and research you do yourself, the more likely you are to find good leads in the sub prime mortgage game. Since there are many companies out there searching for leads, the more leg work you do the more leads you will be able to generate for your and your company.

The housing crisis, which started 13 months ago, has recently gotten substantially worse. The states hit the hardest with this crisis are California, Florida, Nevada, and Arizona. Mountain House, California is the most ‘underwater’ community in the United States. Almost 90% of the people who live in this community owe more on their home mortgages than their houses are worth. The first homes in this area were sold in 2003, and since then the average homeowner who lives in Mountain House is in debt by approximately $122,000. In some cases, houses are being valued at less than 50% of their original value. It is impossible for many of these residents to even imagine being able to pay off their mortgages. Already, banks have taken over 101 properties in the Mountain House community. The housing crisis is causing these people with “underwater” homes to cut back on spending, which in turn is causing a setback in the economy. Everyone in this area is being forced to make cutbacks in order to pay their mortgages. They can no longer afford to partake in certain luxuries such as getting their nails done, going to the movies, or going out to eat. This is negatively affecting the business of local companies. The owner of a local furniture store stated that his business was down by 50%. Stores that have already gone bankrupt in this area are: Soccer World, Linens ‘n Things, and Fashion Bug.

The subprime mortgage crisis was triggered by the failure of mortgage companies, investment firms, and government sponsored enterprises who had invested in subprime mortgages. Subprime mortgages, specifically, are mortgages with higher interest rates, made to borrowers with low credit scores who do not qualify for prime loans. These loans are frequently used by people who want to increase their current credit rating. The subprime mortgage crisis started in 2000 when the Fed lowered interest rates to prevent a possible recession. This allowed for more people to buy houses, causing the demand and value of homes to increase. Lately, due to the current mortgage situation, the issue of subprime loans is controversial and can be identified by examining the impact on business, government, and society.

The current mortgage crisis is affecting US business both positively and negatively. Although the positive affects are more narrow and harder to determine, it is positively affecting the renting industry. People are finding it more favorable to rent homes and apartments instead of buying. This is because prospecting homeowners do not want to become involved in this crisis and risk having their home go “underwater”. As expected, this issue has more negative affects on US business that positive. The most major affect that subprime loans are having on the economy, is obviously its affect on the mortgage market. People are no longer able to pay the mortgages on their houses, because they owe more than their houses were originally worth. In a lot of cases, the value of entire neighborhoods is decreasing due to foreclosures and delinquencies. Another negative effect that is that businesses are closing and companies are pulling in less business. This is happening because since many people owe more on their home mortgages than their houses are worth, they are starting to cut back on things that aren’t necessities such as eating out, going to movies, shopping, and more. In turn, this is having a negative affect on many businesses in the United States. Since less people are buying goods and services, less goods and services are being produced. Many businesses in the US are cutting down on their number of workers or closing altogether.

In addition to business, the subprime mortgage crisis is also affecting the US government. The government is helping the companies who sold the mortgages but is doing very little to help individual homeowners. The government is involuntarily being forced to bailout certain Wall Street firms. For example, there was the $85 billion bailout of American International Group Inc. and the bailout of both Fannie Mae and Freddie Mac. While this might be viewed as a negative affect to the government itself, it can also be seen as a positive affect in a certain aspect, because if all of these financial services and insurance firms went bankrupt the economy would be even more of a disaster right now. The government is being negatively affected by this crisis indirectly because homeowners who are involved are falling behind on their tax bills which is hurting state and local governments. The government is being viewed harshly by many Americans because government officials have said that they will not help victims of the subprime mortgage crisis because these victims should not be rewarded for making bad decisions.

This crisis is also having an affect on members of the US society. Although there aren’t many positive affects this crisis is having on society, right now housing prices are lower for those people and families who are looking to buy homes. This is especially helpful for first time buyers who aren’t trying to sell their current house in order to move into a new house. Housing prices are so low right now, that this is the prefect time for people contemplating becoming first time homeowners to buy. Adversely, this crisis is having many negative affects on society. People are no longer able to do the things they are used to, due to increasing prices. Most people affected by this crisis are cutting back and limiting their spending to only necessities. This is preventing people from doing things that they were used to doing before the housing crisis, such as tanning, getting their nails done, shopping, golfing, and going to the movies. Society is also being negatively affected by this crisis, because people who want to sell their homes are having a tremendous amount of trouble doing so. Some homeowners are even declaring bankruptcy and are willing to have their credit ratings ruined in order to get out of their current mortgage situation. Another affect on society is that neighborhoods with foreclosed homes are also experiencing a large increase in crime.

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With all of the foreclosures and bankruptcies that are being triggered by the subprime mortgage crisis why don’t lenders just put all of these homeowners in better loans? We are asked this question on our mortgage blog quite often. It’s a reasonable question too. If it’s the bad loans that are causing the problems wouldn’t be cheaper for the lenders to just bite the bullet and fix the bad mortgages? Meaning, wouldn’t it cost banks less money to lower interest rates and fix adjustable rate mortgages on their loans than the billions they are losing from all of the foreclosures?

In some cases banks are doing just this because it does make sense. However as I will explain, this is much easier said than done for most banks. The reason is that very few banks these days “own” the mortgages they service. A few regional and national banking chains do maintain a portfolio of loans that they originated, but by in large most banks do not. Most mortgages are owned by a pool of investors and are merely serviced by the company that homeowners send their payments to.

This is why when you call your current lender that you already have to refinance they make you re-qualify for a new mortgage again. While I was originating mortgages, I had countless borrowers call me to refinance that were disgusted with their mortgage company for that very reason. It seems to reason if you have paid your mortgage on time for ten years the bank would just lower your rate to keep from jumping-ship to another lender. The problem is that they have to put your new loan in a new portfolio and sell that portfolio to other investors, this is called securitizing.

Banks and lenders buy money to sell much as retailers do for the inventory that they keep on their shelves. For instance, a toy store can purchase a crate full of toy soldiers at a wholesale price then put them on the shelves and retail them for a profit. Banks buy and sell money the same way from their retail, or mortgage divisions. The only difference is that banks reach their loan capacity they have to take these groups of loans and sell them to investors on Wall Street. If banks didn’t do this they would loan all of their money and be out of the mortgage business.

Now you have a group of loans that is being serviced by the bank that is owned by 1 to 100 different investors. That group of loans is treated like the wholesale the box of toy soldiers that is sold by the case not individually. To ask the investors to reach into the “box” and pull one soldier out and alter it would disrupt the total value of the box as a single unit. This would also upset the other investors who have money tied up in the box of toys.

Staying with the toy soldier analogy, what has happened to banks in this crisis is they can’t sell the box of toys to the investors anymore. The retailer has $100 invested in the box of toys and investors believe that the toy soldiers are a bad investment and will only offer $70 dollars for the box. This means that the retailer has to hold onto the box until prices rise back to $100 or sell the box for the $70 dollars and take the loss. This is the same with banks today; either they cannot afford to sell their loans or they have chosen not to and ride out the storm.

Both way lenders and banks have stopped buying and selling money as freely as they used to and cash is in short supply. When supply is short and demand is high prices typically go up. This is why the Federal Reserve Chairman keeps lowering the prime rate in an attempt counter higher rates that would almost drive a nail in the coffin of retail lending. As of this article Atlanta mortgage rates are around 5.75% for a thirty year fixed mortgage and would probably be in the mid-sevens without Bernanke’s involvement.

Passing legislation that over regulates banks and lenders will not solve our problems. Neither will instituting individual government plans aimed at helping a finite amount of borrowers like some in congress have suggested. The answer to this subprime mortgage crisis will be derived from a plan to restore confidence in mortgage backed securities that will allow the flow of money to open up once again. The free market will correct its mistakes and lending will begin a new day.

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