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The Casualties of Subprime Lending (Page 1 of 2)
Subprime lending has recently caused over 56 lenders to either go out of business or stop issuing subprime loans because of excessive foreclosure rates. The lending community made decisions in the last few years that dramatically eased a borrowers qualifications with a resultant dramatic increase in foreclosures.
The housing demand was so strong that lenders started to compete for the insatiable mortgage demand by making qualifying very easy. One example was the creation of the stated income loan, or the liars loan. In the loan application, the borrower only had to state his income without showing any proof of that that income. Unfortunately about 60% of borrowers over-stated their income on their loan applications to qualify for their loans. A review of lending practices showed racial disparities in African-American and Hispanic low-income neighborhoods which had 1 ½ times as many subprime loans at higher interest rates and closing costs as compared to low-income white neighborhoods.
The lenders planned to compensate for higher default rates by charging higher interest rates and closing costs. But to make payments as low as possible for the borrowers, lenders developed low-initial interest rate loans (teaser rates) or negative amortization (Neg Am) mortgages. With a Neg Am loan, a borrower would actually owe more than he originally borrowed when he went to sell.
The teaser rates combined with adjustable interest rates caused borrowers to be hit with huge mortgage payment increases. Most borrowers couldnt afford huge monthly payment increases and foreclosure rates began to rise. Lenders gave the loans on the assumption that the homeowner would do whatever necessary to make the payments, or the lender would get the property back in foreclosure and re-sell it for a profit in hot real estate markets.
Overlooked by lenders was the fact that real estate investors had become a major factor in the real estate market that had previously been dominated by the retail buyers or single family homeowners. The actual statistics went from investors owning about 2% of all single family homes in 1990 to almost 28% in 2006. This huge increase in investor ownership caused the tail to wag the dog and sent the real estate market into price advances that exceeded historical stock market gains.
Lenders were not discouraged, and to make loans even more affordable, developed 100% financing loans designed to eliminate PMI or Principal Mortgage Insurance by using an 80% first and a 20% second mortgage. This 80/20 program was so successful that it became the standard loan for most new homeowners for an 18 month period in 2003 2005. Now the borrower had two mortgages, the first at a traditional interest depending on the borrowers credit rating and a second mortgage with a higher interest rate of 3% to 5% above the first mortgage rate.
We are now seeing huge default rates among 80/20 financings because the borrowers saw an opportunity to refinance their properties, cash out an equity profit without having to sell their homes, and just walk away without making any mortgage payments.
A Car Loan With Bad Credit – What Is It
Searching for an automobile loan when your credit is perfect is normally a piece of cake. Primarily you have the world of all car dealers within the palm of your hand. However, if you’re planning on looking out for any type of car loans with bad credit or are searching for a bankruptcy auto loan, it becomes much more difficult. You see, your credit score is the number one factor that loan originators will look at before they make a decision to loan you the cash or tell you you cannot have a loan your credit score is too low.
But, do not begin getting too exited yet. If you happen to have some ‘fair’, ‘bad’ or ‘poor’ credit as the lenders wish to call it, you still have several options to get yourself a vehicle loan. On the other hand, finding yourself a good car loan with bad credit is completely going to require some extra time since you’ll have to do some further researching and submitting more forms before you’ll find the one that you’re most comfortable with.
Most of the time the car loans depend on the applicants capability to pay the borrowed amount. Vehicle loans also rely upon the information that the applicant should have a good credit history. Deficient credit occurs when someone will not take his/her bank account seriously. There are a number of reasons why an individual could end up having rotten credit that finally results in him/her being rejected for automotive loans.
When an person submits for a car loan with bad credit he is apt to have a credit check. The creditors go through their past records to determine if bills are paid on time and if there have been important transactions made in their bank accounts. In the meantime if the person decides to apply for a mortgage throughout this period the pending inquiry would leave the creditors unsure whether or not he/she has been approved or rejected hence frequently putting off the creditors and being rejected for car loans.
The good news is that substandard credit is repairable and several individuals with rotten credit get approved for autoloans. A lot of often than not individuals with inferior credit will consult experts and acquire guidance to repair flawed credit. Moreover there are a lot of financial establishments which offer a car loan with bad credit to individuals with flawed credit history. These establishments also have definite auto types for specific sorts of applicants and provide them an idea of what kind of arrangement they’ll be approved of. With this data the applicant will select from the list and choose what type of car he/she would purchase.