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Sub-prime questions left unanswered by national media
Jun. 12th, 2007
While the national media outlets are reporting the facts, they often miss the underlying story.
Too often we find the media creates additional questions that are left un-answered. Here are several questions that are received fairly regularly.
What’s really happening with major lenders – have we seen the last of the 100% financing options?
The answer is NO. 100% financing will continue to be available. The financing options will be reduced to one of two types of borrowers. Either those borrowers with a credit score of 700 and above, or those borrowers who can document all income, assets, and can write letters of explanation for credit blemishes. That means credit remediation is more important than ever for those who want to become borrowers, however in my experience consumers don’t really understand what impacts their credit scores. They don’t know there are some straightforward ways that their mortgage advisor can help to increase those all-important credit scores.
What is considered a risky loan by today’s lending standards?
“In general, borrowers with credit scores below 620 have proven to bring more risk to the table than those with higher scores. That doesn’t mean they can’t get a loan – but the days of the easy sub-prime loan are over. Here’s what consumers with less than perfect credit in our area may want to consider: Expanded approval loans. Backed by Fannie Mae, these loans reward borrowers by lowering the interest rate after 24 consecutive months of timely payments. FHA loans. Borrowers should ask their mortgage advisor about these tried-and-true loans, which have been overshadowed in recent years by more exotic mortgage products on the market.
Are home values going to be affected by rising defaults?
“Depending on the severity of the rate of loan defaults, it may have a significant impact on our local housing valuations. Consider this: Banks don’t want to hold on to properties – they want to get them off their books. That means they will sell at a discount. We saw this in the early 1990s when there was a rise in foreclosures and a subsequent decline in property values. One factor the national media fails to address is whether a market is supported by large number of investment properties or if the market is mainly owner occupied. The higher the number of rentals, the more significant the potential impact”
Derek Egeberg is Certified Mortgage Planning Specialist, CMPS®, with over 9 years of residential lending experience. If you have any further questions on this topic or any other, you can contact Derek at [928-314-1008] or email Derek@TheApprovalCoach.com.
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