I am wondering if President Bush is going to explain what a “subprime” loan is before, during or after his plan. (I wonder if he knows)
I wonder how many members of congress know what a “subprime” loan is.
I wonder how many members of the media who have uttered the word “subprime” know what one is.
The fact is that 2YR, 3YR, 5YR, and 10YR ARMS and 30YR fixed loans, interest only AND fully amortized over 30 or 40 years were available to PRIME borrowers OR subprime borrowers.
The real difference ? A “subprime” loan comes with a prepayment penalty, usually in place for 3 years.
The penalty is 5 to 6 months worth of interest if you pay the loan off early.
Many borrowers chose the shorter term because it was a lower rate thus a cheaper payment.
LOAN(noun) Sum lent to be repaid with or without interest.
“subprime” loans are really no different than a prime loan. The rates are higher based on perceived risk.
IT IS THE BORROWER THAT IS SUBPRIME.
A matrix from a “subprime lender” was based on credit score AND % of the loan to the value of the property (LTV).. The higher the perceived risk, the higher the rate.
Generally, a “prime” borrower needed a mid score of at least 620, although there are many cases that a higher score borrower couldn’t qualify for a “prime” loan.
It’s like saying that DRUNK CARS are dangerous.
A car is a car, and it’s the drunk DRIVER that is the problem.
I’m going to watch and see how many times the word “subprime” is used, and if anybody offers an explanation of what a “subprime” loan is.
In light of your explanation….it appears that subprime has been re-defined in this current market. People think of it as a loan available only to those who could not qualify for a prime loan.
There are cases where a prime borrower was able to get a better loan by going to a “subprime” lender.
They took a 3 YR prepay and got a better loan.
The subprime lender was able to offer loans to many people who would not have otherwise qualified. Even at 10% interest, people who bought in 2002-2003 had nice equity by 2005. They got lucky on their timing.
The vast majority of loans are not defaulting. Even with 20% defaults, 80% are still paying. It’s the smaller % that has caused the collapse.
The problem was the risky BORROWER, not the loan.
ANYBODY who took out a risky loan and saw their property rise in value, isn’t complaining about the loan that they took out. They aren’t offering a share of their profits back to the lender.
THAT should be the REAL bailout plan. EVERYBODY who was a subprime borrower in the last 5 years who has benefitted should contribute to a fund to help out those with bad timing. 😉
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