Even if it would help, which it wouldn't, I certainly would not advocate getting rid of sub-prime mortgage loans. Yes, I do a great deal of business in sub-prime loans but in ways that most people wouldn't imagine. Yes, I even pay more to my loan officers for these loans because I can. And yes I am very bullish on sub-prime loans because they do things for borrowers that conventional lenders wouldn't consider (in my opinion for no reason). Let me explain and maybe you will understand the need for this segment in the mortgage industry.
I became interested in sub-prime loans in 1994 right after we had a major earthquake in Southern California and Alan Greenspan started raising interest rates. The mortgage industry went into an immediate shock mode and didn't come out of it for about 15 months.
I was determined to find an aspect of our industry that wouldn't be as susceptible to interest rate swings as the general market and it turned out to be the sub-prime sector that fit the bill. Sub-prime means less than a prime borrower and one who cannot be rate conscious because of the limited amount of lenders supplying these types of loans. (This group has grown significantly since the early 1990's).
Sub-prime has the last of the common sense lenders. They are concerned about their collateral as much as prime lenders, even more, so they concentrate more on the appraised value than "A" lenders. They are less interested in the past earnings and more interested in the cash flow of the borrowers. They are always looking for compensating factors to offset bad credit such as length of time in the property, time on the job, years in the profession and elapsed time since the borrower had been late on the mortgage payment . They do have higher rates to compensate for the credit problems but they don't have many surcharges such as paying extra for cash out or higher loan amounts.
They give everyone in this Country another chance, or another chance after the first chance and even another chance after that. If borrowers appreciate the opportunity afforded sub-prime lenders then they try to clean up all of their credit and take some cash out for reserves as well. They make sure they don't go right back to credit cards, they pay their mortgage payments on time and in a few short years they gracefully bid adieu to the industry and become prime borrowers. That is the highest and best use of the sub-prime industry.
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.
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