Jun
30
Is the sub prime lending crises due to banks trying to unload mortgages/bussiness loans of illegal alians?
Filed Under mortgage | Comments Off
tuff2bme001 asked:
What are the major “low” lending standards that has caused the “sub prime” mortgages crises?
Adult Cpr Instructions
What are the major “low” lending standards that has caused the “sub prime” mortgages crises?
Adult Cpr Instructions
Jun
30
Can I claim my home equity line of credit when filing for bankruptcy?
Filed Under mortgage | 3 Comments
Jun
29
Sub-prime lenders face bankruptcy: Is trouble in the housing market going to lead the US into recession?
Filed Under mortgage | Comments Off
Overt Operative asked:
America’s leading sub-prime lender is in bankruptcy and others are not far behind.
Sub-prime lenders provide variable rate mortgages to people who wouldn’t otherwise qualify for a home loan. These loans account for 20% of the homes sold in the already troubled housing market.
With rising interest rates, the default rate on existing home loans have skyrocketed, which has left the sub-prime lenders holding the bag. As a result, the bottom will literally fall out of the housing market this year.
Will the combination of increasing energy prices and a falling housing market lead us into recession? Or, is our economy strong enough to absorb the loss?
Balsabulb:
God loves optimists.
Steps On How To Do CPR
America’s leading sub-prime lender is in bankruptcy and others are not far behind.
Sub-prime lenders provide variable rate mortgages to people who wouldn’t otherwise qualify for a home loan. These loans account for 20% of the homes sold in the already troubled housing market.
With rising interest rates, the default rate on existing home loans have skyrocketed, which has left the sub-prime lenders holding the bag. As a result, the bottom will literally fall out of the housing market this year.
Will the combination of increasing energy prices and a falling housing market lead us into recession? Or, is our economy strong enough to absorb the loss?
Balsabulb:
God loves optimists.
Steps On How To Do CPR
Jun
29
What Lies Beneath : Sub-Prime Lending in the UK
Filed Under mortgage | Comments Off
John Smith asked:
There has been significant growth in the number of lenders offering secured lending to people with credit problems, including those who have been bankrupt, have County Court Judgments logged against them, and for purposes such as debt consolidation. As consumer credit debt tops an eye-watering £1.2 trillion in the UK, it is no wonder that the major lenders in the UK and some significant players from abroad have been falling over themselves to get a slice of the growing sub-prime cake in the UK.
But for the IFA there is need for caution. The evolution of the UK sub-prime market needs to be examined and the implications for those who are active in it examined.
From an IFA’s perspective, get sub-prime business wrong and the consequences could be serious.
Several factors caused a growth in demand for sub-prime mortgages in the mid-1990s. These include: mainstream lenders automating credit-scoring procedures; more people with previous debt repayment problems; more marginal borrowers seeking loans for home-ownership and, in the late 1990s, soaring levels of borrowing for consolidation of debts as interest rates rose. Since the early 1990s, a range of factors has created circumstances in which both the demand for, and the supply of, sub-prime lending has flourished.
Following the 1990s recession, more people suffered some episode that had harmed their credit rating, whether from house repossession, falling into arrears with housing or utility payments, which were pursued more aggressively by privatised companies, having had a CCJ or being made bankrupt. Reflecting broader labour market changes, more people had flexible contracts or terms of employment and income that was variable or hard to confirm.
Mainstream lenders, which had suffered during the housing market recession, reacted by exercising extreme prudence in lending, particularly using mechanised and centralised credit-scoring mechanisms to select only low-risk borrowers.
Individualised
The UK sub-prime sector started to evolve from the mid-1990s with the entry of specialist lenders. These saw a niche for lenders building on a more individualised approach to underwriting and pricing the risks involved in lending to sub-prime borrowers. Luckily a buoyant property market has covered up any deficiencies in the risk pricing models. House prices have more than doubled in the past decade, so it is not advisable to heap too much praise on the sub-prime lending actuaries.
A greater proportion of borrowers in the sub-prime sector are in arrears than those in the mainstream sector, as might be expected, around 10 per cent to 15 per cent in 2004.
There is also evidence that sub-prime lenders move towards possession more quickly once arrears start to accumulate, on both first and, especially, second mortgages. Now there is a new raft of specialist sub-prime to sub-prime lenders which are mopping up the heavy adverse clients. Competition would on the face of it seem like good news for sub-prime clients and intermediaries active in this segment. This year there are expected to be six new entrants in the UK sub-prime mortgage market.
Deutsche Bank has already entered the fray, Oakwood Financial Services enters later this year, headed by the ubiquitous Michael Bolton, formerly of BM Solutions/HBoS. Others of note, include Mortgages Plc, which is backed by Merrill Lynch, and is making real inroads with its innovative products, keen pricing, technology and extensive teams of field sales support. GE Capital, GMAC, BM Solutions, Money Partners, Platform – the list goes on. These organisations want serious market share and that means sacrificing margin to get to the top of sourcing system best-buy tables.
When lenders compress margins, other things can suffer, such as commission payments. At the near-prime end of sub-prime there is now little difference between rates offered by high street lenders and commissions paid.
If there is a sustained price war, and the signs are it is under way, only those with big balance sheets will survive. That could mean the end for a number of small niche players. It is like the corner shop taking on Tesco – there will be casualties and collateral damage. A favoured niche sub-prime lender may not be around forever.
Clearly sub-prime lenders fill a market gap. They allow entry to owner-occupation for those who are able to repay, but fail high street criteria. They allegedly offer credit repair to borrowers who, if they maintain repayments can re-enter the mainstream market. There is an important qualification to make here. Sub-prime lenders in the main will not proactively credit repair clients.
Assumptions
It would be nice to assume that a sub-prime client who has diligently suffered the ignominy of higher interest rates would automatically get a rate reduction if he paid his sub-prime mortgage for two years without missing a beat. But that is not how it works. Sub-prime lenders securitise their lending portfolios and that means investors who buy these juicy mortgage-backed bonds expect a decent rate of return.
Proactively managing these cleansed clients to a better rate would put them at loggerheads with their investors, so it is the customer who misses out. Brokers and IFAs need to remain vigilant and pro-actively manage their cleansed clients back to prime rates with high street lenders or face the wrath of the FSA which is taking an ever closer look at this market segment.
Record levels of consumer debt mean that debt consolidation has become increasingly popular. Consolidating can allegedly provide a “fresh start” for a client whose borrowing has become unmanageable. Sub-prime borrowers are higher risk overall, and face higher interest rates and charges than mainstream borrowers. They also face higher charges.
There is evidence that sub-prime lenders are relatively quick to pursue repossession and impose relatively high charges to borrowers in arrears. Repossessions have doubled in number from last year. A worrying trend, and one which would gain real momentum if property prices headed southward.
This can lead to a downward spiral for borrowers, through repeated re-mortgaging from lenders at increasingly higher rates and worse terms due to increasingly poor credit records.
This is an area of significant importance to intermediaries – and one that could come back and bite the unwary.
The FSA’s initial review of sub-prime lending is no doubt the first of many more detailed investigations as it begins to understand the complexities of the market. In its initial review the FSA was concerned many firms could not demonstrate that they had gathered sufficient information in certain areas to demonstrate suitability of a sub-prime product.
All information gathered for the purpose of assessing suitability needs to be recorded. The FSA has sounded the warning bell, reminding brokers that they need to have regard for all relevant facts about a customer of which they should reasonably be aware when selling a sub-prime mortgage product, as well as those facts that a customer has disclosed himself.
It also added that firms must determine what is relevant when dealing with each customer, but in particular brokers must understand and document: – the customer’s credit history, including an awareness of his debt position details; – any existing mortgage arrangements and – income and expenditure information to assess affordability.
To demonstrate suitability firms can use a factfind document to show that all requirements have been discussed and considered with the customer. Completing a checklist can demonstrate additional considerations have been reviewed with the customer.
Enforcement
It is only a matter of time before the FSA starts to enforce its treating customers fairly principles. Those in the sub-prime sector can pay significantly more for borrowing than those in the mainstream sector.
While this might initially appear to be unfair in that it is the more financially vulnerable who pay the most, the question is really whether such borrowers pay more than is warranted by the extra risk they present.
Money advisers, in particular, express concern that people may be tempted to borrow more than they can really afford. Spiralling levels of consumer debt back this up.
There is no doubt the FSA will start to monitor what is being done to proactively credit-repair a sub-prime client. Leave a cleansed client on higher sub-prime rates longer than is necessary at your own peril. The TCF principles are there for all to observe, and the FSA does have teeth.
The sub-prime market is set for a period of extended competition and consolidation. Factor in the ever- increasing presence of the FSA and its principle-based management, and it is clear that you cannot play at sub-prime lending. Unless a company has critical mass and sub-prime is a significant proportion of the business mix, it should tread carefully because there is no doubt that the FSA will claim scalps.
Hands On CPR
There has been significant growth in the number of lenders offering secured lending to people with credit problems, including those who have been bankrupt, have County Court Judgments logged against them, and for purposes such as debt consolidation. As consumer credit debt tops an eye-watering £1.2 trillion in the UK, it is no wonder that the major lenders in the UK and some significant players from abroad have been falling over themselves to get a slice of the growing sub-prime cake in the UK.
But for the IFA there is need for caution. The evolution of the UK sub-prime market needs to be examined and the implications for those who are active in it examined.
From an IFA’s perspective, get sub-prime business wrong and the consequences could be serious.
Several factors caused a growth in demand for sub-prime mortgages in the mid-1990s. These include: mainstream lenders automating credit-scoring procedures; more people with previous debt repayment problems; more marginal borrowers seeking loans for home-ownership and, in the late 1990s, soaring levels of borrowing for consolidation of debts as interest rates rose. Since the early 1990s, a range of factors has created circumstances in which both the demand for, and the supply of, sub-prime lending has flourished.
Following the 1990s recession, more people suffered some episode that had harmed their credit rating, whether from house repossession, falling into arrears with housing or utility payments, which were pursued more aggressively by privatised companies, having had a CCJ or being made bankrupt. Reflecting broader labour market changes, more people had flexible contracts or terms of employment and income that was variable or hard to confirm.
Mainstream lenders, which had suffered during the housing market recession, reacted by exercising extreme prudence in lending, particularly using mechanised and centralised credit-scoring mechanisms to select only low-risk borrowers.
Individualised
The UK sub-prime sector started to evolve from the mid-1990s with the entry of specialist lenders. These saw a niche for lenders building on a more individualised approach to underwriting and pricing the risks involved in lending to sub-prime borrowers. Luckily a buoyant property market has covered up any deficiencies in the risk pricing models. House prices have more than doubled in the past decade, so it is not advisable to heap too much praise on the sub-prime lending actuaries.
A greater proportion of borrowers in the sub-prime sector are in arrears than those in the mainstream sector, as might be expected, around 10 per cent to 15 per cent in 2004.
There is also evidence that sub-prime lenders move towards possession more quickly once arrears start to accumulate, on both first and, especially, second mortgages. Now there is a new raft of specialist sub-prime to sub-prime lenders which are mopping up the heavy adverse clients. Competition would on the face of it seem like good news for sub-prime clients and intermediaries active in this segment. This year there are expected to be six new entrants in the UK sub-prime mortgage market.
Deutsche Bank has already entered the fray, Oakwood Financial Services enters later this year, headed by the ubiquitous Michael Bolton, formerly of BM Solutions/HBoS. Others of note, include Mortgages Plc, which is backed by Merrill Lynch, and is making real inroads with its innovative products, keen pricing, technology and extensive teams of field sales support. GE Capital, GMAC, BM Solutions, Money Partners, Platform – the list goes on. These organisations want serious market share and that means sacrificing margin to get to the top of sourcing system best-buy tables.
When lenders compress margins, other things can suffer, such as commission payments. At the near-prime end of sub-prime there is now little difference between rates offered by high street lenders and commissions paid.
If there is a sustained price war, and the signs are it is under way, only those with big balance sheets will survive. That could mean the end for a number of small niche players. It is like the corner shop taking on Tesco – there will be casualties and collateral damage. A favoured niche sub-prime lender may not be around forever.
Clearly sub-prime lenders fill a market gap. They allow entry to owner-occupation for those who are able to repay, but fail high street criteria. They allegedly offer credit repair to borrowers who, if they maintain repayments can re-enter the mainstream market. There is an important qualification to make here. Sub-prime lenders in the main will not proactively credit repair clients.
Assumptions
It would be nice to assume that a sub-prime client who has diligently suffered the ignominy of higher interest rates would automatically get a rate reduction if he paid his sub-prime mortgage for two years without missing a beat. But that is not how it works. Sub-prime lenders securitise their lending portfolios and that means investors who buy these juicy mortgage-backed bonds expect a decent rate of return.
Proactively managing these cleansed clients to a better rate would put them at loggerheads with their investors, so it is the customer who misses out. Brokers and IFAs need to remain vigilant and pro-actively manage their cleansed clients back to prime rates with high street lenders or face the wrath of the FSA which is taking an ever closer look at this market segment.
Record levels of consumer debt mean that debt consolidation has become increasingly popular. Consolidating can allegedly provide a “fresh start” for a client whose borrowing has become unmanageable. Sub-prime borrowers are higher risk overall, and face higher interest rates and charges than mainstream borrowers. They also face higher charges.
There is evidence that sub-prime lenders are relatively quick to pursue repossession and impose relatively high charges to borrowers in arrears. Repossessions have doubled in number from last year. A worrying trend, and one which would gain real momentum if property prices headed southward.
This can lead to a downward spiral for borrowers, through repeated re-mortgaging from lenders at increasingly higher rates and worse terms due to increasingly poor credit records.
This is an area of significant importance to intermediaries – and one that could come back and bite the unwary.
The FSA’s initial review of sub-prime lending is no doubt the first of many more detailed investigations as it begins to understand the complexities of the market. In its initial review the FSA was concerned many firms could not demonstrate that they had gathered sufficient information in certain areas to demonstrate suitability of a sub-prime product.
All information gathered for the purpose of assessing suitability needs to be recorded. The FSA has sounded the warning bell, reminding brokers that they need to have regard for all relevant facts about a customer of which they should reasonably be aware when selling a sub-prime mortgage product, as well as those facts that a customer has disclosed himself.
It also added that firms must determine what is relevant when dealing with each customer, but in particular brokers must understand and document: – the customer’s credit history, including an awareness of his debt position details; – any existing mortgage arrangements and – income and expenditure information to assess affordability.
To demonstrate suitability firms can use a factfind document to show that all requirements have been discussed and considered with the customer. Completing a checklist can demonstrate additional considerations have been reviewed with the customer.
Enforcement
It is only a matter of time before the FSA starts to enforce its treating customers fairly principles. Those in the sub-prime sector can pay significantly more for borrowing than those in the mainstream sector.
While this might initially appear to be unfair in that it is the more financially vulnerable who pay the most, the question is really whether such borrowers pay more than is warranted by the extra risk they present.
Money advisers, in particular, express concern that people may be tempted to borrow more than they can really afford. Spiralling levels of consumer debt back this up.
There is no doubt the FSA will start to monitor what is being done to proactively credit-repair a sub-prime client. Leave a cleansed client on higher sub-prime rates longer than is necessary at your own peril. The TCF principles are there for all to observe, and the FSA does have teeth.
The sub-prime market is set for a period of extended competition and consolidation. Factor in the ever- increasing presence of the FSA and its principle-based management, and it is clear that you cannot play at sub-prime lending. Unless a company has critical mass and sub-prime is a significant proportion of the business mix, it should tread carefully because there is no doubt that the FSA will claim scalps.
Hands On CPR
Jun
28
Can my partner get a home equity line of credit without my signature?
Filed Under mortgage | 3 Comments
Vicky asked:
My partner and I are splitting up. We own a home together. Can she take out a home equity line of credit without my signature?
Antonio
My partner and I are splitting up. We own a home together. Can she take out a home equity line of credit without my signature?
Antonio
Jun
27
The Sub-prime Mess: What Types of Real Estate Loans to Avoid
Filed Under mortgage | Comments Off
Kinan Beck asked:
“Sub-Prime lending, which is also referred to as near-prime, B-Paper, and second chance lending, has garnered a great deal of attention recently. This is largely because this type of lending is considered to be risky for both the borrower and the lender and many people have felt the sting of a sub-prime loan that has gone awry.
What is Sub-Prime Lending?
Sub-prime lending is a type of loan that is given to a person that does not qualify for the best available interest rates. This is usually because the person looking to buy the real estate has a poor credit history and, therefore, does not qualify for a regular real estate loan.
Since sub-prime loans are given to those with poor credit histories, the interest rates on these loans are much higher than a standard real estate loan. This factor alone can make it more difficult for the buyer to repay the loan on a timely fashion. Since the person taking out the loan generally has a history of defaulting on loans or making late payments, there are additional risks involved with sub-prime lending.
Who Engages in Sub-Prime Lending?
Some lending institutions specialize only in sub-prime lending while others offer it as one more type of loan that can be provided to those looking to buy real estate. Therefore, if you are interested in a sub-prime loan, you have many options available to you.
Many critics of sub-prime lending believe that lending institutions that supply these loans are preying on desperate individuals and are taking advantage of a bad situation. Some critics believe that sub-prime lenders are deliberately seeking out people that will be unable to repay their loans so they can foreclose on the property and take it as collateral. Those that support sub-prime lending, on the other hand, maintain that these lenders are helping individuals buy homes that would otherwise be unable to make such a purchase.
Should I Take Out a Sub-Prime Loan if My Credit is Bad?
Taking out a sub-prime loan is risky and very costly. Since you will have to pay a higher interest rate than normal, you will ultimately lose thousands of dollars in interest payments that could have been avoided if you had waited to buy your real estate at a better rate.
Since you will be paying so much in interest when you buy a home with a sub-prime loan, you will also be putting yourself in a bad financial situation. If you are unable to repay the loan in a timely fashion, your home can be repossessed and your credit will become even worse.
Although you have been long looking forward to the day when you could buy your dream home, it is better to work toward rebuilding your credit so you can qualify for a traditional loan. In many cases, you can re-establish your credit in as little as one year by making payments regularly and on time toward your other debts. Using a credit card and paying it off in full at the end of each billing cycle is one of the best ways to accomplish this, just be sure the card reports to the major credit reporting bureaus.
Whether you think sub-prime lending is predatory or not, it is a poor financial move to make. Hold off on your purchase and you will put yourself in a far better financial position for the future.”
Auto Touch Up Paint
“Sub-Prime lending, which is also referred to as near-prime, B-Paper, and second chance lending, has garnered a great deal of attention recently. This is largely because this type of lending is considered to be risky for both the borrower and the lender and many people have felt the sting of a sub-prime loan that has gone awry.
What is Sub-Prime Lending?
Sub-prime lending is a type of loan that is given to a person that does not qualify for the best available interest rates. This is usually because the person looking to buy the real estate has a poor credit history and, therefore, does not qualify for a regular real estate loan.
Since sub-prime loans are given to those with poor credit histories, the interest rates on these loans are much higher than a standard real estate loan. This factor alone can make it more difficult for the buyer to repay the loan on a timely fashion. Since the person taking out the loan generally has a history of defaulting on loans or making late payments, there are additional risks involved with sub-prime lending.
Who Engages in Sub-Prime Lending?
Some lending institutions specialize only in sub-prime lending while others offer it as one more type of loan that can be provided to those looking to buy real estate. Therefore, if you are interested in a sub-prime loan, you have many options available to you.
Many critics of sub-prime lending believe that lending institutions that supply these loans are preying on desperate individuals and are taking advantage of a bad situation. Some critics believe that sub-prime lenders are deliberately seeking out people that will be unable to repay their loans so they can foreclose on the property and take it as collateral. Those that support sub-prime lending, on the other hand, maintain that these lenders are helping individuals buy homes that would otherwise be unable to make such a purchase.
Should I Take Out a Sub-Prime Loan if My Credit is Bad?
Taking out a sub-prime loan is risky and very costly. Since you will have to pay a higher interest rate than normal, you will ultimately lose thousands of dollars in interest payments that could have been avoided if you had waited to buy your real estate at a better rate.
Since you will be paying so much in interest when you buy a home with a sub-prime loan, you will also be putting yourself in a bad financial situation. If you are unable to repay the loan in a timely fashion, your home can be repossessed and your credit will become even worse.
Although you have been long looking forward to the day when you could buy your dream home, it is better to work toward rebuilding your credit so you can qualify for a traditional loan. In many cases, you can re-establish your credit in as little as one year by making payments regularly and on time toward your other debts. Using a credit card and paying it off in full at the end of each billing cycle is one of the best ways to accomplish this, just be sure the card reports to the major credit reporting bureaus.
Whether you think sub-prime lending is predatory or not, it is a poor financial move to make. Hold off on your purchase and you will put yourself in a far better financial position for the future.”
Auto Touch Up Paint
Jun
27
What is the current fuss over sub-prime loans?
Filed Under mortgage | Comments Off
Silent Kninja asked:
What are sub-prime loans, anyway? Any advice would be appreciated.
Glade Scented Candles
What are sub-prime loans, anyway? Any advice would be appreciated.
Glade Scented Candles
Jun
27
2nd Home is it better to get an equity Loan to purchase or a 1st mortgage?
Filed Under mortgage | 6 Comments
helenta35 asked:
We own our house fully No mortgage value approx $550k. We are thinking that we like to retire early to near the beach. Currently we found nice homes with land in that area for $175k. Is it better to get a home equity for the full cost of the Beach home plus any other small debit (approx $75k 2 cars and a timeshare) or continue to pay on the individual debits and add a Mortgage for the Beach house?
The ultimate goal would be to get settled into the 2nd home and then sell the current home pay off the balance and then put the rest in an investment with monthly dividends to use as retirement income until we reach retirement age and also maybe get a parttime job.
Bobby
We own our house fully No mortgage value approx $550k. We are thinking that we like to retire early to near the beach. Currently we found nice homes with land in that area for $175k. Is it better to get a home equity for the full cost of the Beach home plus any other small debit (approx $75k 2 cars and a timeshare) or continue to pay on the individual debits and add a Mortgage for the Beach house?
The ultimate goal would be to get settled into the 2nd home and then sell the current home pay off the balance and then put the rest in an investment with monthly dividends to use as retirement income until we reach retirement age and also maybe get a parttime job.
Bobby
Jun
26
How does a home equity loan work?
Filed Under mortgage | 3 Comments
newmoon asked:
I need to know all the details and if it is a good choice. I have payed off my vehicle and credit cards and have none, but I have alot of student loan debt. Our dilema are the student loans. And paying them. I have heard about home equity loans and heard about being tax deductible. How do they work? Do they look bad on your credit? How much can you borrow ? Does it add to the years to pay off your house? We only have eleven years left to pay as it is right now. Just wondering what is a good option. I even thought that after I graduate and am working that my pay checks can go all to my student loans. I am just looking for some good ideas without having to stress out about debt and bills and such. We are trying to pay our bills off and so far have done good. But those student loans are looming in the background.
Tyrone
I need to know all the details and if it is a good choice. I have payed off my vehicle and credit cards and have none, but I have alot of student loan debt. Our dilema are the student loans. And paying them. I have heard about home equity loans and heard about being tax deductible. How do they work? Do they look bad on your credit? How much can you borrow ? Does it add to the years to pay off your house? We only have eleven years left to pay as it is right now. Just wondering what is a good option. I even thought that after I graduate and am working that my pay checks can go all to my student loans. I am just looking for some good ideas without having to stress out about debt and bills and such. We are trying to pay our bills off and so far have done good. But those student loans are looming in the background.
Tyrone
Jun
25
Use my savings or a home equity line to fix my house?
Filed Under mortgage | Comments Off
johnny asked:
I need to have work done to the foundation of my house. Should i use my savings to pay to have this done, or should i use my home equity line of credit to do it? If i use the line of credit i will have to pay up to 10% interest on the loan, whereas if i use my savings i wont have to pay any interest and i can just make the payments back to myself. Plus it gives me the freedom to “skip” a payment to myself should i need the money for something else, whereas i can’t skip a payment back to the bank.
If i were to use my savings, it would wipe it out.
I need to have work done to the foundation of my house. Should i use my savings to pay to have this done, or should i use my home equity line of credit to do it? If i use the line of credit i will have to pay up to 10% interest on the loan, whereas if i use my savings i wont have to pay any interest and i can just make the payments back to myself. Plus it gives me the freedom to “skip” a payment to myself should i need the money for something else, whereas i can’t skip a payment back to the bank.
If i were to use my savings, it would wipe it out.
