With the subprime mortgage crash?

Question

in the last year due to foreclosures and deliquency ratings, what is the future availablity of a mortgage loan for a person with less than perfect credit?

Answer 1

Not good. If you can get your score high enough to qualify, you'll pay through the teeth.

Answer 2

Subprime mortgage crisis was caused through the investment banks selling securities called Collateralized Debt Obligations (CDO's), which are basically debt arrangements with the collateral being pools of mortgages with similar terms (ie thousands of let's say 25-year mortgages for example). Hedge funds, pension funds, banks or small institutions buy these CDO's and collect upon the payments made by the homeowners. Now the value of these securities is similar to that of a bond; it's derived from the interest payments (which are higher because of the risky nature of subprimes). If the homeowners default, there is no value. To further complicate things, these CDO's are known as "Level 3 assets" which are basically securities which are not publicly traded so you really just don't know what they're worth. For a given stock or bond, there's always the open market to determine the price. That's why it's taking so long for the banks to slowly come out with the news of their write-downs and it's impacting institutions globally. Even Chinese banks are taking hits because they purchased these CDO's, which are now suddenly worthless. So a few banks are taking losses, where's the crisis? Banks by nature don't have too much liquid assets lying around, it's all the money of depositors. If the depositors feel insecure about the bank's health, they will pull out and exacerbate the issue even more, ala E-trades and Bear Stearns. If we go back to basic economics, there is a banking multiplier, so for every dollar deposited, there's a multiplier which increases the money circulating in the economy: in actuality the full amount is not actually there to sustain a full withdrawal. Thus there's the crisis. Small banks can go under, big banks take massive hits, and the US financial system as a whole loses investor confidence, and that's really all we run on. Confidence.

Answer 3

Don't get to discouraged. My husband and I are in the process of making our first home purchase now. We both have credit scores in the mid-600's (not good at all). We are going with a My Community program, which is designed for people of moderate income to become homeowners. There are some restrictions (must meet income guidelines, max loan amount also) but we are putting 0 down and received a 7% 30yr fixed conventional mortgage, which isn't to terrible considering where the rates are currently.

I would ask a lender about this option.

Good luck!

Answer 4

Guidelines are tightening up daily. I get 2-3 notifications of product changes every day. And over 100 wholesale lenders have ceased doing business as a result of the current market and delinquencies.

Your best bet in the future will most likely be an FHA mortgage. Get your scores above 580 and save for a minimum down payment of 3% and make sure that you can verify 12 mos housing payment history and all your income.

I do believe once things settle down that there will still be a market for sub-prime loans. However they are moving towards full documentation loans and higher down payment requirements.

Hopefully you will be ready to purchase while prices are still down!

Answer 5

It's far less available than it formerly was. Lenders are considerably tightening their criteria for extending mortgage loans these days. Almost the entire subprime market was comprised of less than stellar credit borrowers. Previously lenders were not overly concerned with doing subprime lending, simply because the real estate market continued to increase in price value, and they felt comfortable that they would be able to extract their investment in full if they needed to foreclose on a subprime.

The weakening of the real estate market value basis changed that outlook entirely. Lenders are now finding themselves with foreclosing loans which are valued at 120% of the collateral property. Not a good thing.

You won't see this happen again in the near future, since the estimated losses to these assorted lenders is expected to be in the $175 billion range when the mess is finally over.

Answer 6

Predicting the future is dicey in all things, much less this type of question.

My gut feel is that we are in the midst of an over-correction and there will still be good options in the future. Ultimately no matter what the future of the mortgage industry - you'll be best served by doing the things that are always good, such as paying everything on time, every time and living within your means. These actions manifest themselves in a good credit score, which will always be your best friend in mortgage applications, no matter what the environment.

Answer 7

It will be harder. Considering the the crash that took part this year, major lenders have closed their doors. In addition, more lenders today are withdrawing some of their programs: stated, option arms, 2/28s and so on. However, at the same notation that gives other company's to take advantage of the open market (survival of the fetus). People still need money, maybe more now. I'm not going to saying this will be like this forever, but like everything else it goes in a circle.

Answer 8

There will still be products out there for higher risk borrowers. You just won't be able to get those interest-only adjustables that start out at ridiculously low rates or negative amortization loans. You'll also not be elligible for no-stated-income loans and you'll probably have to pay high loan initiation fees (points). You also will have to come up with a more sizeable down payment (like a 75% maximum LTV or something).

Answer 9

I think in your case it would be best to talk to a licensed mortgage professional, rather than risk just filling out a form on a site.

A company that helped me was Loan Center, their number is 866-752-6089, I would recommend giving them a call, they can help answer your mortgage refinance questions and get you going.

Answer 10

Good if in fact you can put some money in the deal.

Many lenders now are requiring 10% down.

FHA loans require 5%.

You missed the boat by about 2 years