When the real estate market was booming these last several years, lenders often ignored borrowers' credit problems because the property values were rising. Now, with the downturn, lenders are looking at borrowers who are paying late.
According to the Christian Science Monitor, that means 2.2 million people are facing foreclosure and could lose their homes.
The majority of these loans are called subprime---meaning that the loans are for people who do not qualify for prime market rates because of blemished or limited credit. Wikipedia.com says that about 25% of the population falls into this category---they have a credit rating below 700.
In 1995, only 5% of mortgages were subprime. Today, Wall Street estimates it is about 18 to 24%.
I'm all for home ownership for everyone, but one needs wise when purchasing a home. With subprime loans come higher interest rates and a greater risk of losing your house. There may be a short-term gain of a new home, but it could cause greater credit problems down the line if you are unable to make the payment. Also, if you are able to improve your credit prior to your purchase, you could qualify for a better interest rate.
In response to this major problem, Freddie Mac said on February 28th it will stop buying subprime adjustable-rate mortgages and will require more borrowers to prove they earn the income they disclose on their loan applications. Unfortunately, this may be too late for many.
No comments:
Post a Comment