Stupid loans to anyone is what fueled the market, and created a bubble. It allowed people who should be tenants to become “homeowners”.
The fact is that 100% financing is no more risky today from an underwriting standpoint than it was 5 years ago. The ONLY difference is that the market is going down, not up.
It was irresponsible of the industry to allow 100% financing with stated income. The underwriters know that most people are lying with a stated income loan. They did then and they do now.
If you finance ANYTHING with 100% loans, you are always going to have a % of defaults. It is the backbone of the credit card industry. They also finance 100% of your purchases, but their cushion is charging 15%-30% interest to offset their losses.
Many people were able to get in and buy a home with a crazy exotic loan, and can afford their payments (for now), so it did help a large group of people establish some equity.
The trade off of lax lending is the bubble it created and the meltdown aftermath, which has only begun.
Another crime was the option arm loan, which is the worst loan ever invented for the borrower, but the most profitable for the lender. It paid the largest commission in the industry, and the mostly unregulated, highly unethical, irresponsible loan folks pushed this loan to the masses, with no conscience, only seeing dollar signs in their eyes of the commissions that they received.
I’m in the lending industry. Most people don’t have a clue how to shop for a loan or understand what their options really are. It’s an industry full of rogues.
Many intelligent people who think that they understand loans, still get screwed in fees or rebates, or thinking that they are getting a “no cost” loan.
I am totally honest with everyone that I deal with. I don’t hide anything from them, and explain their options to them in detail. There are a million different loan programs and nobody can know them all. It’s impossible to guarantee that somebody is getting the lowest rate, they change daily or even intra-day, and ads are misleading.
What borrowers deserve and can get is complete honesty and their options explained to them, so they can make an informed decision, from someone with integrity. There’s a mortgage broker on every corner. An honest one is very hard to find.
Even people in the industry cannot explain underwriting decisions, which not only vary from lender to lender, but can vary with underwriter’s at the same lender.
Most people don’t understand what constitutes a “subprime” borrower…. Someone with a 660 credit score, full doc and strong reserves, but ONE mortgage late payment may have to go subprime.
The problem is widespread. but in general the lax underwriting of subprime loans can and will spill over to the prime market. The bubble has burst in certain geographic markets and will continue to lead the bad news.
Some people are living way beyond their means, and will sadly milk their savings and retirement accounts to try and save their home. I do not think that it is going to work, and will lead to financial ruin.
There are plenty of people that have plenty of equity, with homes worth 2x-5x what they paid. Other than a drop of their paper profits and net worth, they are fine and stable.
They aren’t looking to move.
Probabaly less than 10% of homes will trade hands, but will get 90% of the attention. The foreclosures, the short sales etc.
Understanding their loan and getting ethical advice would have saved many people the pain and suffering that they are experiencing today.
