Roger Schlesinger

The one thing we know about announcers on radio or T.V. is they certainly know how to talk, but do they know what they are talking about? Rarely, it seems! Take the sub-prime problem that reared its head last week on Wall Street. It seems everyone is talking about it and yet no one seems to know a thing about it. I dare say most who profess to tell you all they know about sub-prime, know nothing at all. Have I made that mistake, you bet! Last year I wrote a column on cars, acknowledging to not having the car gene and one of the readers pointed out that it was obvious because octane doesn't dictate gas mileage as I had implied. I really don't know, in fact I don't know if he is right, but I shouldn't have written it without knowing. I do not believe my wrong (?) information affected anyone but today's announcers are leading people to get the wrong idea about sub-prime loans and thus potentially hurting people who are in need of these types of loans.

Sub-prime lending is designed to help people with less than stellar credit get a mortgage loan. But this type of lending is also extended to those with good credit who might have a problem property, lack of reserves or maybe newly self employed. Prime lenders generally will not lend to someone who is self employed for less than two years, sub-prime will.

Sub-prime lenders offer the same types of loans as prime lenders but the terms can be different. First of all most sub-prime loans come with a prepayment penalty, in states where they are allowed, for two to three years. Most prime loans do not have these. Sub-prime loans generally have higher rates than prime loans but not always. Sub prime loans do not require mortgage insurance as the rates reflect the charge for mortgage insurance over 80% loan to value.

Cash out to a sub-prime lender means giving the borrower cash, not paying off debts that the borrower currently has on his credit report. Prime lenders consider cash out if you take more cash than you need to pay off your mortgage(s) and generally charge for the service.

Both types of lenders have a limit for the amount of cash you can have, but the sub-prime lender begins counting when you actually get cash, while the prime lender begins once the dollar amount surpasses the current mortgage(s).

Roger Schlesinger

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.