Mar. 7, 2007 - The Sub Prime Mortgage Melt Down

Lenders Tighten Standards

Sub-prime home mortgage lenders are coming under pressure to tighten standards for credit impaired borrowers.  This affects to both buyers and sellers.  Earlier this month, federal bank regulators announced a crackdown on loose lending standards of sub-prime home mortgages, as two major lenders struggled to cope with losses and regulatory problems.  In a nutshell, these lenders have been giving creative mortgages to people who could not afford them.

Homeowners with poor credit histories who want to refinance, but who have less than 5 percent or 10 percent equity in their houses need to worry.  People with poor or fair credit, and who don't want to verify their incomes or assets, are also finding it more difficult to qualify for loans. Especially if they want to borrow more than 95 percent of the house's value.

Only about 15 percent of mortgage borrowers are in the sub-prime category. Those are the people, with credit scores less than 620 (on a scale of 300 to 850).  Futher, it was discussed during my scheduled office meeting today, those with credit scores of  less than 570 might find it difficult to obtain Priivaste Mortgage Insurance (PMI).    PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home's value. In other words, buyers with less than a 20 percent down payment are normally required to pay PMI.  About 85 percent of mortgage borrowers have credit scores of 620 or higher.  Most of these buyers needn’t worry about obtaining financing as long as they are willing to verify income(s) and assets to the lender.  As a result, sellers will have fewer buyers who will qualify for a mortgage loan, than in recent years.

For more on this subject go to: recordonline.com