The Sub Prime Market...

I have been asked about the sub prime market from just about every realtor that I have spoke with over the past month.

As realtors you’re faced with a tough challenge: To inform your buyers about how the national rise in subprime loan defaults is going to affect them locally. I’m here to help.

I’ve worked in the mortgage industry for over 12 years, and I’ve funded over 2000 loans in my career – and I’ve seen this market hit many highs and survive some tough lows. Allow me be your resource as you cover this rapidly changing market.

While the national media outlets are reporting the facts, they often miss the underlying story. I want to help you share some of the nuances of the story with you. Here are some of the questions I have been asked, and my thoughts on them:

Q. What’s really happening with major lenders – have we seen the last of the 100% financing options?
A . 100% financing is likely to be available only to those borrowers with the pristine credit, which will impact affordability in our area as potential borrowers diminish. That means credit remediation is more important than ever for those who want to become borrowers. Experience shows that consumers don’t really understand what impacts their credit scores. They don’t know there are some straightforward ways that their mortgage advisor can help to increase those all-important credit scores.

Q. What is considered a risky loan by today’s lending standards?
A. Borrowers with credit scores below 620 have proven to bring more risk to the table than those with higher scores. That doesn’t mean they can’t get a loan – but the days of the easy subprime loan are over. Here’s what consumers with less than perfect credit in our area may want to consider: Expanded approval loans. Backed by Fannie Mae, these loans reward borrowers by lowering the interest rate after 24 consecutive months of timely payments. FHA loans. Borrowers should ask their mortgage advisor about these tried-and-true loans, which have been overshadowed in recent years by more exotic mortgage products on the market. Tougher documentation standards. Borrowers will be asked to at least state their income and in some cases they will also be required to provide the documentation to support it.

Q. Are home values going to be affected by rising defaults?
A. Depending on the severity of the rate of loan defaults, it may have a significant impact on our local housing valuations. Consider this: Banks don’t want to hold on to properties – they want to get them off their books. That means they will sell at a discount. We saw this in the early 1990s when there was a rise in foreclosures and a subsequent decline in property values.

You Trusted Advisor
Jeffrey Stanton, ITI