Subprime Home Loans

Are subprime loans the real culprit in the real estate market?

Subprime loans are getting all the blame right now, but it seems to me that the core problems in real estate are the prices. All of the “flipping” of the last several years created artificial demand in the market place resulting in super inflated prices. The market is beginning to correct with a “real” demand that will in turn force home prices down to levels that reflect true market value. Once home prices correct to levels that are more in line with incomes we will see a stabilization in the real estate market. My next question, where’s the bottom?

I don’t think so, they are a niche product that was created to fill a demand. The real estate market never was created for day traders. Rising or lowering market values once a loan is funded do not adjust to suit the spending habits of the borrowers. Guidelines were stretched but good financial advice rarely if ever was given to borrowers of hybrid type loans. Loan officers also swerved many into bad loan products for their borrowers to make extra rebate. The loans themselves aren’t as bad as the ones selling them in most cases. Another issue is while it is easy to pick on sub-prime loans due in part to their typical poor credit scenario borrowers that would likely default on any type loan. A huge segment of the default market isn’t sub-prime at all. It is the jumbo loan market and all the neg am loans that are starting to become delinquent. Another issue is that of Real estate agents overselling people into more house than they need, or can truly afford. In those cases a option arm is often their only hope of closing escrow. The shame is that many will lose their dream home once their loan starts to adjust up. In other cases it is just people that have no shame that know they wont make their payments but borrow anyway. I have seen more 1st payment defaults in the last year than in the last decade. I process over 200 notice of default filings per week and have analyzed pre foreclosures for over 20 years. The seasoning on loans going into default is at an all time low. Lastly I think our own federal government has a bit to do with this as well. They enticed rates to go low so people could take out their equity to keep this economy going. Most that have refinanced have done so to not really lower their mortgage payment as much as to just lower their total payments. Now they are broke and overextended again with no chance of digging out of their debt trap. I know theres a few more reasons but in the big picture I really think sub-prime loans are just an easy target due to the poor credit and spending habits of the niche they were created for.

Inflation, deflation, subprime mortgage crisis, & banks

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