Ask:
I found this article today on USA Today on subprime loans. It has a sad story about how easy it is to fall behind.
Have your heard of subprime loans? What are the good, bad, and ugly about them? Do you have any stories or thoughts on these?
Answer:
What I can tell you is that when we were shopping for a loan, we went thru our builder, who had their own mortgage company. They dragged their feet for months on the approval, so finally we shopped around. We went through a broker who gave us songs and dances, offering loans from 9-12.95 percent. One tried to tell us we were subprime, although we knew we weren't. Reading the fine print, a couple tried to charge early pay off fees. On a mortgage? No way! I couldn't believe how predatory some are. We finally found a good lender, not a broker, who charged 8 percent, good at that time - we refinanced for lower about 3 years later. I could just imagine if we hadn't done our homework! By the way, our builder finally got back to us 2 weeks before closing w/an approval. We weren't interested, especially when they said they still couldn't lock in the rate, which was 8.5%. They were miffed when we withdrew our application. Yet, they couldn't return calls earlier...
Answer:
Wow that was a sad article to read. It just breaks my heart.
Answer:
That was a sad article, but the only thing I wonder is why do people roll the dice on something so costly? When my DH and I first bought our home we were both working FT with no children. We were approved for a ton more that what we bought. We wanted to buy a house that we could afford on one salary alone in case one of us lost our job etc. I was really surprised how qucikly they were falling behind. Wow.. I hope they don't get themselves in the same situation again...
Answer:
I am new and haven't figured out how to quote another poster, but to answer OP:
Subprime loans are loans for people who might not have the best credit or enough credit history and the interest rate is higher.
What happened in the last 5 yrs was huge home appreciation. So lenders started giving all kinds of loans. You could get a loan without putting a do, with bad credit, with no job history. You could get a loan where you would only pay interest for the first 2 or 3 or 5 yrs. For many people that was a great way to buy a house. Once the interest only period would expire, they would refinance because by that time the value of the house would have gone up and now their house would worth more money. That was the reason lenders would approve for much more money than a family could afford. Everyone was counting on home appreciation.
But now, value of the houses is not going up anymore and people who are faced with paying principal or if their interest rate reset are faced with situation where their mortgage payments incread drasticly. So, many can't afford it and so the foreclosure comes.
It really is very sad. But there are too many people who are uneducated about personal finance and businesses that take advantage of that.
Lena
Answer:
I don't feel sorry. To me claiming ignorance is no excuse for getting yourself in so much trouble. A lot of these people are the reason house prices have gone through the roof in the bubble areas (where I live an average house is $550k now - $250k 5-6 years ago). Paying way more than they can afford with any conventional, reasonable mortgage and little or no money put down. This is often done in greed by people just hoping to "Flip That House" for huge profits within a year. Speculative buying has hurt "average" people like me who can't possibly dream of paying over a half million for a very ordinary house that isn't worth half that. I cannot get into a house now at all (until the market crashes, which will happen).
Again - no sympathy from me. Sorry folks.