The Experts Say: Don’t Consider A SubPrime Loan!
Leonardo Simpser; Raising Awareness In The Minority Community
SubPrime mortgage companies implement a type of targeted advertising, called “steering.” This is basically seeking out neighbourhoods, and communities where the majority of the population is either African-American or Hispanic. Their scams are designed for immigrants, with low credit, no credit, and financially unstable families, in low-income communities. Subprime lenders offer loans requiring no documentation, social security numbers, insurance or tax escrow, and promise their applicants that they can make what is far out of reach, within inches of their grasp, financially speaking.
Leonardo Simpser is the managing director of the HNMA, abbreviated for the Hispanic National Mortgage Association. Simpser is the director of the new association, that will hopefully make not just Hispanics, but all Americans, regardless of origin, aware of the dangers involved in becoming indebted to a subprime mortgage lender. His advice to first time homebuyers, indeed, any homebuyers considering applying for a subprime loan is blunt: “Don’t! If you can’t afford to buy a house, don’t buy a house,” says Simpser.
SubPrime Is A Self-Destructive Business
The problem with targeting borrowers that cannot qualify for loans, or cannot afford to purchase a home, is that in most cases, subprime mortgage lenders are getting exactly what they are asking for. Consider, for instance, an unnamed company, who grows from seven employees in 1997 to approximately two thousand employees, ten years later. The company recently closed its doors; as are many other independent subprime mortgage companies, now that the real estate market has slowed to a crawl. If people are not buying houses, then they do not need loans, of course. Other than that, there is also a significant amount of foreclosures, heightening every year in the United States. Why? Because people who would otherwise be unable to qualify for a loan, are qualifying through the subprime lending market. Notorious for their sharply cut interest rates, and their whole percentage increases, subprime lenders cater to those borrowers who do not qualify for prime loans; or at least appear to.
With false promises, they lure in unsuspecting, and uninformed immigrants, elderly, newlyweds, really, any class of homebuyer can fall victim to the targeting advertisements, especially those entering the market for the first time. The problem the companies face, is that people are unable to pay the incredibly high interest rates, and worse than that, they’ve been locked under contract to pay them. So then, even if the borrower wanted to switch to a cheaper company, they could not. Whereas subprime lenders used to rake in the profits from this kind of parasitical business, people are now just simply not paying their bills. And what happens when a mortgage goes unpaid? Foreclosure. Which takes banks and lenders alike a great deal of work and time to sort through. Many previous owners leave the houses in shambles, out of anger at the whole situation, and soon there’s a big ugly mess, and no one, especially the borrower, is any better off.
Are SubPrime Lenders On Their Way Out?
Possibly. The United States’ foreclosure rates have soared forty-seven percent, in the last few years. What does that mean for subprime lenders? Many things, most all the end of their businesses. At one point, the subprime lender market was the place to be, if you were an aspiring loan shark, looking for a good entrepreneurship. The market made billions, after heaping high interest rates and ridiculous loan terms onto borrowers. Now, as the market index rates rise, and homeowners are unable to make the payments they were unaware they even signed up for, homes are foreclosed upon, and suddenly, subprime lenders cannot even afford to finance any more homes; now subprime mortgage companies are laying off huge portions of their employees, closing their doors for good, and declaring bankruptcy.
The Domino Effect Continues
Not only are the businesses for subprime loans failing now, but they are going to keep failing, in the future, if the housing market continues its slow pace. Some experts claim that subprime lending companies in general are to blame for what seems to be a collapse in the housing industry. A study taken by the CLR or, Center For Responsible Lending found that one in five of the loans financed in 2005-2006 would fail, and the homes would be foreclosed on. That’s a figure of over two million homeowners at risk. Another study, conducted by the MBA or Mortgage Banker’s Association also found that in the last twelve months, subprime payment delinquencies have, and are continuing to rise.
Various experts, realtors, and economists, are all speculating on whether or not the real estate market has actually hit bottom. Some claim that this is as low as it can go, before it gradually gets better, or just stagnates where it is currently. Other say that as bad as the market is now, it can and will get worse, mainly because the ARM’s, or Adjustable Mortgage Rates will be resetting soon, from 2005-2006, later this year, and all of next year, in 2008; they’ll be resetting to levels that most are certain, the new consumers won’t be able to keep up with, starting the whole process of mass foreclosures over again.
Budding Legal Disputes
Civil rights groups are becoming involved in the rapidly declining market; and were demanding a six month moratorium for the homes that are being foreclosed on, back in late March and early April of this year. They feel that subprime lenders, and the supporting services for them saddled the families being foreclosed on with unaffordable mortgages, particularly the ARMs, which were then called “exploding” or payment shock” ARMs. Dubbed that, because after two years of a fixed rate, it suddenly “explodes”, or resets, to the market index rate, and adds a margin as well. Those and other non-traditional mortgages are driving many people into delinquent payments, and foreclosed homes. Low income and minority families take the worst of the mass foreclosures, while the civil rights associations attempt to stave off the foreclosures, allowing the families to make enough payments to get them back on their feet again. Whatever the outcome, the real estate market in general is collapsing, and grinding to a halt; legal action and lawsuits over false claims are definitely in the near future.