The Subprime Market is imploding. What does it mean for me?

[mcck]

Once again I am asking opinions of the expert mortgage brokers out there. I have a subprime loan with Accredited. As you been seeing in the news most of the subprime suppliers of loans are getting hit hard. How will this effect me or anyone else in the subprime market? What if a company goes under?

I would welcome your expertise. I also noticed that I am getting more freelance mail lately from prime lenders wanting me to refi which I plan not to for the time being because of prepayment penalty.

[ybrew]

I don't see how it would effect you at all if you already closed. Your loan papers have value and should your supplier go under, someone else will be available to take your mortgage payment or start foreclosure proceedings.

I could see an effect on those shopping for loans. There may be less available options for subprime borrowers, but that's not necessarily a bad thing.

I looked at the prequal I received in jan 06. That prequal was for a 7.5% 40-year 80% loan (2 yr arm) and a 30 year 9.99% 20% loan (2 yr arm)

I closed in Dec 07 with a 30 year fixed @ 5.875%.

Cleaning up my credit and qualifying for A+ rates was a much better deal than messing with a 40 year note at 7.5%!

So yeah, possibly some folks may be denied loans at predatory rates, but it's probably best for them to wait and rent a little longer than to put themselves in a no-win situation that'll likely result in foreclosure before the 2 year prepayment penalty expires.

-ybrew

(not a fan of subprime lenders)

[elyse449]

I'm trying to qualify us for a refi--we have to refi by August '07 as we can not afford another ARM rate jump. We're already paying 1541.00 (it went up 300 dollars last month).

If I can't get us to the appropriate level's FICO wise--we're SOL, and I don't mean statute of limitations, people. We'll literally be priced out of our own home.

Thankfully, we have EXCELLENT equity so we'll pull some money out when we sell...but we'll be back to renting again and we'll have to move to boot.

ARM's are fine provided you understand they have a short shelf life, be prepared to refi--work on it within those couple years you have. We were STUPID. We didn't act quickly enough. We had 2 yrs to improve our credit. Than again, my dh getting laid off two times didn't help.

So--something like this may leave me and my family HOMELESS.

Elyse

[IHateCAs]

I'm trying to qualify us for a refi--we have to refi by August '07 as we can not afford another ARM rate jump. We're already paying 1541.00 (it went up 300 dollars last month).

If I can't get us to the appropriate level's FICO wise--we're SOL, and I don't mean statute of limitations, people. We'll literally be priced out of our own home.

Thankfully, we have EXCELLENT equity so we'll pull some money out when we sell...but we'll be back to renting again and we'll have to move to boot.

ARM's are fine provided you understand they have a short shelf life, be prepared to refi--work on it within those couple years you have. We were STUPID. We didn't act quickly enough. We had 2 yrs to improve our credit. Than again, my dh getting laid off two times didn't help.

So--something like this may leave me and my family HOMELESS.

Elyse

Why did you get an ARM if you planned on staying where you lived? If you plan on living in the place, get the 30 year fixed note.

[Gary Craig]

You shouldn't expect any problems - since you loan has closed. funded, and you're now making payments. Wait it out, after your prepay expires, then start shoping with a new loan.

A few pointers

Get a copy of your credit report when you start shopping, so you know your fico scores. If your give a broker your scores and no lates, plus your balance. He doesn't need to run your credit report. A few weeks ago, I saw a credit report that was for the records. Had (pages)176 inquirys in the last year. Needless to say his score was very very ....very low. Point - the more people you give your SS# to run your credit it will take your score down.

Second suggestion concerning your appraisal - get your own with the option to change the bank name. That way if you get to closing and you don't like to numbers, you can walk away. This will also keep the broker on his toes....

The third suggestion is to include extra into your monthly payment. This does three things. 1) It pays down your principle faster, 2) one extra payment lowers your net effective rate 2.0%, and 3) since you are sending more than the required payment, your credit score will raise....

It sounds like your on the right track thinking and waiting it out.

Good Luck.....

[ybrew]

Why did you get an ARM if you planned on staying where you lived? If you plan on living in the place, get the 30 year fixed note.

I would guess because that's all they could qualify for at the time. My prequal from Jan 06 was an ARM either because that's all I could get or a fixed rate would've been an even higher rate than 7.5%

[elyse449]

Why did you get an ARM if you planned on staying where you lived? If you plan on living in the place, get the 30 year fixed note.

Yep...ybrew is correct, it's all we qualified for at the time.

Elyse

[jq26]

Yep...ybrew is correct, it's all we qualified for at the time.

Elyse

Many other people ended up in ARMs due to that situation. I ended up in one because in June 2005, I was able to get into a 5/1 IO ARM under 5.00%apr w/ no points. It was a full point less than a 30yr at the time, but shortly after the yield curve flattened and there was no longer much advantage to a shorter term note. But I'm also out of this starter house by the time the rate adjusts to full margin so no biggie for me.

Good news for you Elyse- interest rates have been coming down for the past month as equities have tanked and there has been a flight to the safety of bonds. Bottom line, if you can swing it, now is the time to refi into a 30yr if you can!

Let me add that another reason to move quickly is that lender by lender has shut off funding subprime loans as the quality of the debt has degraded.

[kevin3344]

My rate also adjusts in June. Fortunately I'm planning on making any APR adjustments for the next 2 years out. Just in case, I have Charles (aka Firstsource) looking at rates for me...he says they are pretty good to refi right now. My mid-score has gone from 621 to 690 so I should be ok.

The problem usually comes in if you have a ARM and you're in sub-prime territory. With the changes in the sub-prime market right now, it could be tough to refi.

________

Swtlilkitty69

Edited September 9, 2011 by kevin3344

[mcck]

I refied my house November 06 for 3 years. So, I hope by November 09, my scores will be good enough to refi to a prime rate and go for a 25 year loan fixed.

[amortgageman]

Once again I am asking opinions of the expert mortgage brokers out there. I have a subprime loan with Accredited. As you been seeing in the news most of the subprime suppliers of loans are getting hit hard. How will this effect me or anyone else in the subprime market? What if a company goes under?

I would welcome your expertise. I also noticed that I am getting more freelance mail lately from prime lenders wanting me to refi which I plan not to for the time being because of prepayment penalty.

In the event of a subprime lender going under, the lender will need to liquidate assets (loans). These loans would be sold on the secondary market to the highest bidder, who would then own the loan, and either service the loan, or appont a loan servicer to collect the loan payments and perform the other maintenance on the loan.

A loan servicer will usually make their money (income) from a fee charged to the lender for collecting payments, as well as enormous fee income on late payments, force placed insurance, attorney fees in the event of foreclosure or foreclosure proceedings, etc.

As for new mortgage underwriting, yes, there will be tightening of underwriting standards by many subprime lenders, and some products may no longer be available.

Yet we have to remember, that their will always be investors out there who will be willing to take a chance on these loans because of the higher interest rate yields that they can collect on these instruments versus purchasing other lower yielding bonds. We have all heard it before, but the greater the credit risk, the higher the return.

Some interesting facts surrounding this meltdown are the alarming stuff that have caused a 14% (one out of every seven) adjustable rate subprime mortgages are in default, and the fact that 58% of all loans are the adjustable rate variety.

Lenders pitched the adjustable rate loans, because of the attractiveness to the consumer. The consumer bit for it, because afterall, who wouldn't want a lower mortgage payment. The 3/1, 5/1 ARMS, option ARMS, interest only products for the good credit borrowers allowed for cash out of their mortgage plus a lower payment.

Then came the 2/28 ARMS, 3/27 ARMS for the not so good credit borrowers, who had a few blemishes on their credit, and were told that by fixing their credit, they too will be able to enjoy that good interest rate in a couple of years, after their credit was restored. The abd part of it is, that way too many who already had subpar credit, do little or nothing to repair their credit or change their spending habits, and thus, may remain in the same subprime pile of loans.

Many consumers and loan officers dispelled the conversation which should have included what was going to happen when the ARM term expired.

Today, we have an environment where these ARMS are expiring and interest rates on many of the subprime notes executed have an initial interest rate hike of 3%. Notice I did not mention up to 3%, because the loan was set with a floor interest rate plus a margin, which was based on an interest rate that was much higher than the interst rate charged on the loan in the beginning. So the 3% hike is almost inevitable. This 3% difference would account for a sudden $200.00 increase per $100,000 borrowed, and many that barely qualified, are now being squeezed to make the payment, especially the ones who qualified with a high debt to income ratio to begin with.

I would expect in the near future, that some of the more credible lenders will recognize this, and will actually work with the borrowers on the terms of these mortgages. Only time will tell.