Why is it that so many americans can only qualify for subprime mortgage loans to buy a house?

Question

I have not seen the foreclosure problem discussed from this point of view.
I have heard the lenders blamed for being greedy, I have heard borrowers blamed for being greedy and stupid. But isn't the real problem that we have a nation full of people whose credit is in the toilet and they cannot qualify for a regular "non-subprime" mortgage? WHY ARE SO MANY PEOPLE ONLY ABLE TO BUY HOMES BY GETTING MORTGAGES FOR MEANT FOR HIGHER RISK BORROWERS???

I think still that some of you are still not admitting that in addition to the things you say about about personal responsiblity, there is also a deteriation of the american dream. You know the one that if you get at least a high school education, that you should be able to be a middle class person who can raise a family and own a decent home. I think the thing that is not being admitted is that there are many variables also working against the american worker which has put more stress on them financially..like health care expensiveness, gas prices, outsourcing of jobs, illegal aliens taking away jobs and depressing wages etc...
I think that all of this things are in their own small way complicit in the attack on the american middle class and the american dream. People's credit sucks yes partly maybe from lack of wise decision making, but if the whole nation is in the toilet, there is more at play that some of us dont want to admit.

The other thing some of you do is assume that the subprime mortgage is only there so people can by more house. Yes that is true in part, but many people get those loans not to buy more house, but because they need to buy a house period.

One other point is that this crisis may be related to the new credit scoring computerized system that was implemented some years back. Many people who can afford a mortgage and pay bills generally on time, are left out in the cold from a "good" mortgage simply because the computer says their credit score is x and x means they are not qualifed for a standard mortgage.

Answer 1

Because credit reporting agencies in collusion with creditors have stacked the deck against consumers and they've done it all with congress's help. There is no encouragement to save. And the people making the rules have their foot on the scales.

Answer 2

Here is the problem. People WANT the biggest and best house. They WANT the best stereo system, cars, etc. The problem is they cannot AFFORD this based upon their salary.

Banks own the house, you borrow the money and pay them until you pay off what you owe. That is your personal decision. No one held a gun to these people's head and said "BUY THIS!"

Sub-prime or Adjustable Rate Mortgages are designed to be SHORT TERM loans. I had one. It started at 4.5%. Rates went up and I locked on a 15 year loan at 5%. I did this to get into the house as cheaply as possible. So basically I used it as a bridge loan. I could afford the additional costs.

However I know so many people who max out the credit cards to buy stupid stuff. They then get into a house they can't really afford, they get a few repair bills for the car or house, and next thing you know they are having financial problems. So it is their own dam fault and call me a heartless person, but I don't feel sorry for them.

Answer 3

Millions of Americans have modest incomes and poor credit but they want to stop paying rent and begin to participate in the American dream of owning their own homes. Home ownership is also a long-term method of building wealth.

Many of these individuals can actually afford reasonable mortgages but they have obtained mortgages with extremely unfavorable terms because they didn’t qualify for regular mortgages. I think this issue can be favorably addressed for many homeowners. Shore Bank in Chicago was featured on PBS recently as trying to provide reasonable mortgages to people who would otherwise lose their homes. If more lending institutions tried adopting this approach, part of this widespread problem might be resolved.

You’re right that many Americans are currently suffering financial stress. We should be looking realistically at what is happening to ordinary Americans instead of pretending that all is well.

Answer 4

If you go to several well-known banks, and all of them tell you that they're not going to give you a loan, YOU CAN'T AFFORD TO BUY A HOUSE.

If you then go to another lesser known lender and they offer you ANYTHING, don't take it.

It's not about whether you can afford a subprime, and it's not about getting the payment low enough so you can. Some of the lenders are suckering you. You're going to be paying more than 8% over the life of the loan if you get anything other than a fixed rate, and that's just dumb.

You are much better off buying a less expensive house (a fixer upper). If you make basic improvements, you can double the value of your home to build equity rather than paying on a loan to accomplish the same thing.

Answer 5

Well first, 21% of all mortages from 2004 to 2006, were sub prime mortgages.

The reason are varied.

People trying to buy more house than they could afford.

People playing the house flipping game.

The house flipping game, is the part of the story, that hasn't been covered very much.

Those people used sub prime mortgages to finance houses 100%, because they wanted to do some quick remodeling and resell the houses within a year,

Trying to capitolize on rising house prices.

Then when the housing market started going flat, they were stuck with mortgages that were worth more than the houses they bought.

3rdly, there is the tendency of sub prime mortgages, to have teaser rates for the first couple of years.

Where the mortgage payment is 20 to 30% lower the first couple of years, then is increased to normal rates.

Borrowers and lenders both, made the loans based on the ability to afford the teaser rates, and not the rates after they went up.

4th, alot of borrowers, made the subprime loans, with the intention of refinancing again after several years, to gain equity from rapidly increasing housing prices.

When the housing market bottomed out, they could no longer afford to refinance and were stuck with bad sub prime loans.

I really believe alot of the people caught in this mess, brought it on themselves, by trying to make a quick buck flipping houses.

Answer 6

There have always been a significant portion of the population that cannot afford to purchase their own home. I think, overall, the rate of home ownership is pretty high in the US compared to most other countries. The subprime movement was an attempt to get even more people to own homes than ever before and thus spur the home building market.

But part of it was also because low interest rates had allowed home prices to skyrocket, pricing out a lot of people.

It seems to me that if the problem of homeownership was high prices, not high interest rates, then temporarily lowering interest rates even more was not the way to solve it.

This has been discussed in detail by people like Paul Krugman in books and newspaper columns.

Answer 7

Because the Liberals in this country never understood the Democrat's role in this mess. They are fine with helping everyone buy a house because they blame only the banks. Fannie Mae backed 56% of all mortgages and that allowed banks to bundle those securities with implied Federal backing. Try to explain this to the American public. It's easier to say "Bush did it" when it was a combination of the 2.

Answer 8

Because we have nothing in this country set up to teach people about credit and credit ratings and how to use credit wisely.

Not everyone who owns a house had to go subprime, but too many people got suckered in by low rates and ended up either buying more house than they could afford (or got talked into it) or were allowed to buy with little or no equity and no ability to repay, which became even worse when the teaser rates expired. The house-buying frenzy also drove prices up to unsustainable levels in many areas such that supply outstripped demand and caused prices to eventually stagnate and start to fall. When home prices are dropping, and you need to refinance, what you thought was worth a lot more isn't, and no mortgage company will finance or refinance a loan for more than a house is worth.

Answer 9

Plenty of people qualify for regular loans. People tried very hard to take advantage of low interest rates without doing their homework, many even lied on their applications to secure the loans. They did not insist on a fixed rate and bought BIG. Irresponsibility on the part of the borrower and the lender are the cause for the problems they are now facing. Teaching economics to these people would go a long way.

Edit:
Thumbs down for saying people should be more responsible with their finances? No one made these people accept the terms of these loans. Maybe they deserve someone like Hillary running their lives.

Answer 10

The want what they can not afford. People what champaign on a beer budget. The go out, run up credit card need buy stuff they do not need. Then they have no savings and can not save because of their spending habits. When they want to buy a house they have nothing for a down payment. High dept, no savings, no down payment equal a high risk loan.

Answer 11

BOTH are the problem. People with massive debt and poor credit should not be considering home-ownership until they are more stable financially. ALSO, sub-prime mortgage lenders are, by their very definition PREDATORY. It is basically loan sharking. It's very unethical. Plenty of blame to go around on both sides. Their should be tighter regulations, on mortgages.