Subprime goes BUST?
This entry was posted on 3/11/2007 9:51 PM and is filed under Products.
It has been a while since I posted last. Too much chaos right now in the industry. For those undecided what to do at this point if you are shopping for a loan. I looked at a magazine article the other day and realized 5 of the top 10 Subprime loan companies have either 1. Shut down, 2. Possible Bankruptcy 3. Got rid of top management due to loan issues or plain are up for sale. Just last week a top company that we work with shut off access to programs for borrowers with less than 600 credit scores.
The market for mortgages is still very good. Meaning if you have a good credit, assets in the bank and low loan to value you can get some pretty good deals out there. However if you have a credit below 600 and must refinance due to cash needs my advice get a longer term than 2 years just in case. Also make your broker get a secondary loan ready and locked in just in case your loan becomes no longer available.
For the customers and borrowers out there reading this, it isn't doomsday however you need to be aware that these issues exist. What the US economy is facing right now with the way the mortgage industry is going, I would expect the following items to occur over the next 3 to 6 months.
1. Foreclosures and Bankruptcy filings spike as subprime lenders trim back there products forcing those with adjustable rate mortgages into a financial pinch as those rates increase.
2. Recession towards the start of summer to catch up to other industries. Here me out on this one.
People will not be able to free up cash flow by refinancing thus eliminating their buying power. Defaults will increase on those items that seem to help spur the economy.
3. Feds will have to reduce rates come Aug/September to curb off fears of a full blown recession however they will react a little too late forcing multiple rate reductions before years end.
Right now if you are shopping for a loan get your broker/loan officer to secure two loans with different lenders for you and make sure they are giving you a longer fixed period than 2 years. Focus on a 3 or 5 year fixed rate if you have to have one.
If you are in an adjustable rate mortgage currently and you are set to adjust within the next 6 months. Refi into a fixed rate loan now. Even though these are my thoughts about what might happen I am only giving you my opinion, when it comes to your finances it is always better to be safe than to risk a market where your payment keeps increasing and you can't refi because no one can qualify you.
