So have you had enough of the media’s coverage of the “collapse of sub-prime lending? To cut to the chase, it’s all a bunch of hoowie! Let’s start with the basics and go from there. As always, part of my job is to educate, not instill fear. What is sub-prime mortgage lending? There is no absolute answer to this question. Primarily it is for those borrowers with less than perfect credit histories. Someone with a credit score in the 500s would be a likely customer for a sub-prime loan. The initial rate is always higher reflecting the greater percieved risk the lender is taking. Frequently this initial rate is fixed for only 2-3 years under the assumotion that whatever caused the person to need a sub-prime loan in the first place should be cured in 2-3 years making the, eligible for an A paper loan. Yes, there are loans out there that started at 7.5% that are about to adjust to 111.5%! This is what the media is getting all up in arms about. On a $150,000 loan that is an increase of $435.00 per month! Still sounds scary except that the average person has received at leaset a 2% annual increase in income which over three years would increase an annual $60,000 salary to $63672.48 or a monthly increase of $30604! See how most of that $435.00 dissappears? In the meantime a $150,000 house has gone up in value in most areas of the US inclding NC by about 6% per year or $178,652.00! As compared to renting the homeowner’s net worth has jumped $28,652.00 in just three years!. IF a sub-prime loan is in fact the only alternative to renting then I say GO FOR IT!!!!!
What about the “skyrocketing” foreclosure rates! More media hype! I’ll address that subject next time
Duffy
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