The Subprime Mortgage Market Mess and what it Means to you

The Negative Side Of SubPrime Loans: Actually, It’s All Pretty Negative

Why Is The SubPrime Market Still So Active?

With all the awareness being circulated throughout many communities, media, and the Internet, you would think that the attractant of subprime loans and lending companies, would have decreased. Also, news of, and news pertaining to the massive surge of foreclosures and rise in payment delinquency, has been circulated just as much as the negative press on subprime lenders in general. What do the two have to do with one another? Expert economists and various mainstream real estate brokers, not to mention, many politicians with connections to the real estate industry have made many statements about the former being the direct cause of the latter. That is, so to speak, that subprime lending is a self-destructive market that also creates very real impact on both the consumer, and the real estate market itself. So, as previously stated, with all this awareness, why are subprime lending companies, both independent, and mainstream affiliated, still receiving so much business?

Some perspectives on the matter are that since subprime loans are mainly marketed to minorities, such as Hispanic-Americans, and recent Hispanic/Latino immigrants, not to mention, other low income families with origins outside the United States, that the language barrier is what keeps them uninformed. However, there is a newly instated agency called the HMNA, or, Hispanic National Mortgage Association that was designed specifically to raise the awareness and break the language barrier that may or may not cause this social group to remain uninformed. So, if it is not a language issue, why the constant popularity, of a mortgage plan that is obviously detrimental to consumers, and the real estate market?

Other opinions, that have nothing to do with minorities, are that low income families are just more ignorant, simply put, however blunt. Any member of these families would of course prove anyone of that particularly abrasive opinion wrong immediately. But is that really true, in all cases? There is statistical evidence, that although awareness has been raised, people are still applying for, and acquiring these obviously flawed loans. As a matter of fact, minorities, and low income families are not alone in choosing subprime because it is what is most easily available. Many consumers are middle class.

The general consensus view of the continued consumerism of subprime lending companies, is that people just have no other options. Or so they think. That must be, that a well-founded assumption, is that the majority of the aforementioned group believe that just because subprime loans are the most popular answer to bad credit, they must be the only answer. This is of course, not true. The main reason is, that it is marketed so thoroughly to people with bad, or low credit scores, that it becomes a very attractive choice; especially since subprime lending companies sometimes require no documentation, such as insurance, tax, or even so much as proper identification.

The problem with telling people not to do something, is the same as telling a child not do something; not that they want to simply misbehave, so to speak. It’s because all this awareness is saying “Don’t do this!” When it should say, “This is a much safer alternative, try this instead.” Avoiding a problem is a great way to get started, that’s true. But you rarely see anyone making any effort at solving them. There are safe alternative mortgages out there, that are not subprime. The most obvious way of correcting the need for a mortgage is to simply wait. Fix one’s credit, work on paying off one’s debts first. The other more popular is not really so much an alternative, so much as an encouragement to be more careful in selecting a subprime lender. So that, instead of picking the very first offer, which will more often than not, consist of multiple fabricated rates; shop around, compare rates, and information, get quotes, ask questions, and then compare.

Another, less popular and better alternative, is the FHA, or, Federal Housing Administration. The FHA was created after the Great Depression, when foreclosures forced millions of Americans out of their homes and onto the streets. The FHA is beneficial in many ways, but was eclipsed by subprime loans, because the FHA requires more paperwork. ARMs from the FHA are fixed for the first year and often most difficult, of homeownership, after which it will reset, but never above one percent. ARMs from the FHA also never rise above five percent over the original rate, to keep them affordable for the borrowers. Another extremely beneficial service offered by the FHA, is that they provide credit counseling, which is a very valuable service to a family who once might have considered a subprime loan, on the terms that there was no documentation necessary.

Although the process to obtain a loan from FHA is complicated, they target low income families to help them, and turn a profit. As previously stated, many choose the subprime lending companies over the FHA because of this process. First readers, understand; purchasing a home is a complicated process. Purchasing a loan, and a hom is a choice that will have deep impact on the rest of your life, and should not be made light of, as the subprime lenders tend to do. Subprime loans can be approved in mere minutes. The fastest thing, is not always the easiest. Any service that does not require the consumer to be fully capable for buying a home, with the documentation available and necessary, is not a company you will find security with. Even moreso, young Americans, starting families, and lives on their own or with others; wait. Consider your options; because what is recommended to you by others, isn’t always the best choice. The real estate market is under serious threat from subprime lending companies, simply because they are recklessly run, with only one real objective; to make money. In the business world, that is not always such a bad thing, but if a company destroys itself in the process, what good was the endeavor in the first place?