Quote:
Originally Posted by deadbeater
There are cases in which people with excellent credit got conned into making subprime loans when they should have had fixed loans.
|
Doubtful. When people with excellent credit get a subprime loan it pretty much means that they bought a house they couldn't afford and had to resort to sub-prime because they didn't have the income for a conventional loan.
There's nothing wrong with sub-prime loans. There is everything wrong with irresponsible consumers.
When people with fixed incomes are using "stated income" sub-prime loan products, then there is a good chance they are going to have problems when interest rates rise.
But even with all that, according to the article, only 1 in 12 loans are sub-prime and only 1 in 10 sub-primes are delinquent (delinquent just means behind - not foreclosed) and not all delinquent loans go to foreclosure - let's assume 25% do - I doubt its even half or a quarter that much. That means that overall, there is one additional foreclosure for every 480 loans because of the existence of sub-prime loans.
Now out of the 480 loans (for which there is one foreclosure) how many people now own a house that but for sup-prime would have been shut out of owning a home? 39!
So by introducing subprime loans, 40 people get a house that otherwise wouldn't and one person doesn't get to keep it.
And if those 40 were just a little more careful about how much house they bought then the 1 in 40 could easily be changed to 1 in 100.
The system isn't broke but I do think that using "stated-income" on subprime loans should be made unlawful.
edit:
Stated-income is where you tell the mortgage broker/lender what you make and the number is not verified - no documentation is submitted to support the figure it is just accepted without question.