Half of sub-prime mortgagers qualified for prime mortgages.

[dkf]

I heard that on NPR today and it makes me sick to my stomach.

Apparently there were incentives for certain loan officers to TRICK people into expensive mortgages when they should have and could have gotten much better deals.

Congress needs to investigate exactly who was doing this...were they fly by night organizations or our too big to fail banks?

I sure would like to know the answer to that one.

And we need to license loan officers so that we have people who mean to make this a career and have a reputation to protect responsible for these loans.

Loans were never viewed as sales jobs that a borrower needed to beware of. Unconscionable.

[hfojvt]

1. what is the difference between prime and sub-prime?

I got a 5,1 ARM myself when I could have gotten a 30 year fixed. I was better of with the ARM since that gave me a lower interest rate. Should I have been forced into a 30 year fixed? I saved something like $15,000 in interest by paying it off in 4 years, and the lower rate did not hurt either.

[4lbs]

3. "subprime" refers to the status of the borrower with regards to credit score and some other factors.

Usually, those designated subprime have credit scores below 620, have a relatively high debt-to-income ratio (45% or more), and sometimes a very high loan-to-value ratio of 98% or more (meaning they put less than 2% down).

This means they are larger credit risks. They are offered mortgages for subprime borrowers, or "subprime mortgages."

Borrowers that consequently got subprime mortgages were given ARMs with initial low interest rates (around 4%). However, because of the subprime status of the borrower, the ARMs readjusted into much higher rates, and thus, monthly payments, often after just two years.

Thus, the borrower would initially being paying, say, $2000 a month as part of a typical 4 or 5% interest on their home loan. However, after two years, the ARM readjustment caused the interest rate to go up to 10% or higher and the monthly payment to almost double.

There have been widespread allegations that minorities, blacks in particular, have been mostly steered into subprime mortgages, even when they qualified for better ones.

The NAACP has filed lawsuits against 12 mortgage lenders in federal court in Los Angeles. They allege that when median family incomes were comparable between minorities and whites in a neighborhood, the minorities were much more likely to be given a loan from subprime lender.

[hfojvt]

5. ah, thanks for that explanation

I am not sure why I never read that definition before. That sounds like a perfect storm though. A low credit score and a high debt to income ratio and a low down payment. I could see one out of three, but all three together? Loans that never should have been made, but which were profitable because they were bundled and sold and were supposedly a safe investment because the buyer insured himself by buying a credit default swap.

Edit: Also the lender would be okay in a rising market, because they would make money re-selling the foreclosed home.

[sandnsea]

4. Credit rating, qualifying

If you couldn't have afforded the property with the 30 year fixed, then you were more likely to be in a sub-prime. I don't think that just because someone was in an ARM mean that it was automatically a sub-prime. I think other factors were involved, but I could be wrong.

But would you be upset if you knew, with your credit rating and qualifications, you should have had a 5.1 Fixed and they just didn't offer it to you?

[sandnsea]

2. I've been saying that for at least a year

They ALL did it, every single one of them. You couldn't get anybody to negotiate straight with you on a loan.