I watch, read and listen to the pundits who have unofficially announced that the sub-prime mortgage market is dead or at least D.O.A. and I wonder if they have anything better to do during the day then make ridiculous statements. Is there trouble in the sub-prime industry?
Absolutely! Should you paint all of the tens of hundreds of sub prime lenders with the same brush? No! Are any of the lenders vibrant? Yes! Have there been changes made in the industry in the last two weeks? Of course. Now for my take on the entire affair. It might not be as everyone sees it, but it will be a lot closer to reality than what you have been hearing or reading.
The sub-prime lenders are those who lend to people with credit scores in the very low 600 range down to 500. They are also the lenders who lend to people with a good credit score and unusual circumstances as non conforming properties, borrowers without reserves, borrowers who have a spouse with good earnings and bad credit and one with good credit and marginal earnings, etc. Sub-prime lenders have been the "common sense" lenders for the past decade who have rules but can bend them for the right circumstances. That isn't what got them into trouble. What the problem was and will always be the same problem that is in many businesses--GREED!!
Taking chances to make more money, where I wouldn't do it or you might not do it either.
Our major sub-prime lender came out with 100% financing years ago which seemed to make sense. What didn't make sense was 100% to $1 million with a 580 credit score.
My first comment to my rep from that lender was "not with my money!" In my opinion, it was just too big of a risk! That is over. A week ago they dropped the 80/20 (1st and 2nd)followed by the one loan of 100% two days later . Now they won't do any loan with a loan to value or combined loan to value over 90%. They also will not go below a credit score of 540. The reason is no one else will do those loans and they were getting nothing but those types of loans being submitted to them. They didn't want the exposure so they shut it down. Will those loans ever come back ? Bet on it!
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.