Subprime Mess!
I know that every agent is feeling the hurt due to the subprime mess. It is a topic that is raised in almost every class that I have, because it is an issue that is affecting the entire industry.
So what are subprime loans? Well it all starts from the FICO score. The FICO score for all intensive purposes tells the lender the likely hood that the borrower is going to be paying their bills back on time or paying their bills at all. The lower the FICO score, usually below 620, the higher the risk. This in turn means that the borrower will be getting a higher interest rate.
So a subprime loan is a higher interest rate that is given to an individual that has a lower interest rate, due to their risk.
As well, an individual may get this loan if the lender is predatory. Predatory Lender would be when the loan is in the best interest of the lender (meaning they are making the most amount of money) and not in the best interest for the borrower (meaning that it is lowest charges per a month based on the programs that the lender has).
So what have been the issues with this? Well it has been two fold. First, individuals who should have never been buying a house bought a house. This is due to the no doc loans! This basically means you do not have to prove that you make the amount of money that you are saying; you just have to say that you do. In the past few years we have had quite a few individual homeowners & investors that were buying properties in that fashion. Then surprise surprise they were not able to make the monthly payments because they could not afford them, so then they went into foreclosure!
Now we have tons of properties on the market due to individuals foreclosing and not making payments. As a result, the lenders who originally made those loans went under as well - quite a few of them. The most shocking is that of American Home Mortgage closed its doors, and now Countrywide Home Loans is telling us that they are feeling the hurt.
So in taking steps to protect themselves, lenders nationwide are scrutinizing every single loan and making the minimum requirements for loan programs to be much higher; in some cases they are not offering the loan programs which were higher risk. Some of those loan programs are ones such as 100% financing. This is not to say that there will not be a lender that will provide a higher risk loan, such as 100% financing, but it will come at a cost.
If you take everything into account, it gives you the situation we see today. First, we have more homes on the market due to foreclosures and short sales. Second, we have fewer buyers due to lenders being more scrutinizing with the loan products that they are either offering or having such high minimum requirements that not all buyers will be able to get the loans. As a result of both of these issues, we have the real estate market we have today.
I am going to do be doing an entire class on this subject at the GCAAR Real Estate Summit on November 27th for 3 hours of CE credit. If you are going to be coming, please attend this class. I will be sharing with you what I believe this will do for our real estate economy for the next 1, 5, 10 years. As well, how do you educate your clients, so that they understand that the best time to buy is NOW!
Until next time - keep reading - my next article is on the CLUE REPORT! As well, if you have any questions or concerns please do not hesitate to email me at info@rempower.com
Prabhjit Singh