Tis it nobler to put your Borrower into a “Subprime Loan” or have them wait to clean up their credit? I have done a few Subprime Loans, but not many. They definitely a place in the Lending Industry, and it is an option that I feel should only be looked at after everything else has failed.
Some people think that Subprime is an automatic. Can’t do a conventional loan, do Subprime. Peace of cake, I don’t think so. The people that I have been able to put into a Subprime Loan are generally those that are selling a house, but their credit has gone down the shut. People that don’t have a house to sell, those Subprime Loans have been much tougher, and I will explain why.
Subprime candidates have bad credit, now there is a revelation. The reason why they have bad credit is because they don’t pay their bills. The reason why they don’t pay their bills is either because they don’t want to, or more likely don’t have the money to pay them. And there lies the Subprime dilemma, no money. Maybe other Loan Offers on here like Jeff or Brain, can inform me of Subprime Venders that don’t have the same limitation as the ones I have, I welcome that input. So my comments are based on the Subprime Venders I deal with.
Subprime with no money = no loan most of the time in my world. If I have to have at least a 560 score before I can usually offer them a loan with a 10% downpayment. If they are selling a home, that is normally no problem, but if they are not selling a house, rarely is there money to do 5% much less 10%. As we go up the score ladder the need for downpayments start to go down, but so does their chances of me getting them into a conventional or government loan improve.
When I get to that point I give them the choice, Subprime or wait for their credit to improve enough for us to do a conventional or government loan. Once I show them what they still need to do to get their credit score up, the choice is usually to wait, instead of paying the higher rate, points, and being stuck with a prepayment penalty for two years. Some can’t wait because they have to get into a house, or love a house they have found and don’t want to lose it. In those cases I work as hard as I can to get the deal done, but there are rules and regulations that have to be met. If they chose to wait I work with them to get their credit cleaned up, and the company that runs my credit reports has a great credit dispute department that has been a great help.
I know that some people specialize in the Subprime Loan market, and probably have ways of getting around the down payment requirement on the really low scores. 80/20’s are not an option for me with the real low scores, it does become an option as I start to approach the conventional end of things. But again, waiting is a lot of times the better choice when they get that close.
I would be interested in hearing ways that any of you have found to get around this dilemma. For those of you who are not Loan Officers, your comments are welcome as well, especially what do you do as a Realtor in these cases. Do you continue to work with them even though they might not be ready to buy right now, or do you feel that it is a waist of your time?
Long blog and no solutions on my end, but maybe there will be one from your end.
THE END, BUT HOPEFULLY YOUR BEGINNING.
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Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
Excellent questions, George.
Why use a subprime loan? Sometimes, the risk of them waiting is too great in a hot market (not necessarily this one). Sometimes a subprime borrower will actually want to get into the home rather than wait so he can "get a deal".
Most subprime borrowers...stay subprime borrowers. A subprime loan may be their only chance to get a home and get some positive net worth going.
Subprime borrowers who don't make the money should not be buying a home.
It is common to not agree with subprime loans if you are a traditional A paper guy. I was one also a one time. I think the reason I looked down my nose at the subprime LOs was that they hammered the client with fees because they could; I felt that was a bit predatory.
Subprime lending had evoleved to various strata that we don't need to do that anymore. Subprime loans are not harder to obtain for a client like they used to be.
My suggestion is to pose the blog question to some good subprime reps. Try First Franklin, WMC, and Argent to get started.
George.... I will be back to offer more of my input and opinions...
But I wanted to comment on Rich's statement. That is not always true. Actually, doesn't have to be for the most part. Meaning.... many of my subprime loans make the same as a conventional loan. The reason being is because I am in this for the long haul and that I want referrals. Also....keeping it reasonable for the client so they still have a house when I talk to them in a year to refinance them. To try and get them out of that loan. So... you said... "no wonder we paid out so much in closing costs"... it depends on the lender if they want to take care of you. Just like what Brian Brady had mentioned. When you are placed in this category, it's easier for the lender to justify why you have a higher rate and so many points/fees. You know what....if I structure your deall correctly, you can still get a subprime loan with no points.
Again, I'll get into this more a little later of over the weekend.
George....good topic...
Subprime has its postives and negatives. The Positives are that you usually make a better commision off subprime rather than A-paper. The downfall is that you usually spend more time with these individuals sorting out credit and other problems. They are a great source of referrals, but the problem I have run into is that you get referrals from the same type of people (subprime), The problem of putting them in a home now or waiting for the credit to come up is a situational problem.
Brian is right. There are a lot of people who take advantage of the subprime people. These people have very limited options and are usually in a tight spot. This leads to a lot of people charging way too much.
Argent, Irwin, First Franklin, and Newcentury all have great niche products. I have worked with all of them and have been very satisfied. They will work with you on almost any problem.
Sub- 500 scores-hard equity lender if they have cash.
"Mortgage George"
Now you have to know I have nothing add to this.
Investors Only.
However...You got another star! Man you are getting really good at this Blogging stuff.
I feel like a proud Sister...With a point that offered a clue?
TLW "The Lovely Wife"...Kum La Ka Lakka...ROAR!
Brain, Jeff, and Richard thank you for the input. Sorry it took me so long to respond to this, but it was a long day and I just back in a little while ago.
Richard, and Brain I am familar with First Franklin, and NewCentury, but not Argent, Irwin or WMC. We had our monthly company meeting today and Option One came in for an hour, they have made some good changes but that might help. The biggest change is their local Rep. is finally going to start returning his calls...LOL. He wasn't to good at that. Subprime is something that we are trying to become better at and we don't kill them with the fees, but a lot of others do. I guess there is only one way to really get better at them and that is to do them and get to understand them better. Nothing like on the job training, like in the Navy Rich.
Rich, I am glad that the deal worked for you. I am always happy when the closing is finnally over on these loans.
TLW, thank you and that would be a proud "Younger Little Sister" LOL.
HHHMmmmm.... I am not sure who will read this later..... but a few people in here need to relook at what and who subprime is.
One comment..... subprime as a positive is that you can make a better commission on it? Not if you treat the client like "A" paper.... meaning, my $ amount could be exactly the same on a Subprime as it would with a conventional/clean loan.... and be minimal....because I took care of the client. That comment just tells me that many of us our using that excuse about subprime. That it's a great niche for lenders because you can make more. Like I said before...depending on how you treat clients... you can do zero point loans in the subprime market. This is whole other topic.... and I don't play the politician rules of comments. meaning....I just say how it is and if I step over the boundary lines, so be it. Making friends is great, but being honest and true to myself and others is the most important thing. SO I can sleep at night. **Not trying to sound like a martyr here..** But it seems like many times that I make less on a subprime than I do on an easy conventional deal. And I am not talking about my hourly time that is put into these deals. I am talking about making a deal work...and to try and help the client. So when he comes out of settlement, he still has his clothes on, his wallet, and the car that he drove in.... :o) If you catch the point.
You really have no need to whack the borrower with a higher commission just because he's subprime. The AUD engines subprime lenders have created have done away the need for that. Subprime loans, used to be more work (pre-2002). Today, they're quite easier than A paper loans.
"Charging More" for less work should not be the mantra. A mortgageabroker's fee should reflect the work involved.
Tommie, the waiting sometimes does not work, like you stated. And that is one of the problems that I have also with the my Subprime delima, because most of the Suprimes we write are 2/28's, which as you are only fixed for two years, and the rate at the end of the two years could be a lot higher when they go to refinance out of it.
The way I have handled it so far has just been to inform them of all the choices and give them as much information to make their own choice. Not perfect, but is the best one that I have been able to come up with so far that I can live with.
Oh, and by the way Tommie, my father was Mr. Souto, call me George or "Mortgage George" as TLW "The Lovely Wife"...Broker Bryant's...Wife! has nicknamed me.
Thank you for your input.
I say if you are facing subprime or nothing, pick NOTHING!
I just blogged on it. Avoid Subprime Loans! Just Don't Buy!
The American Dream is not for those that don't deserve it. It is only for those with good credit! Fix your credit and THEN buy.
Hey Frank..... you just made the exact same comment on another subprime blog.... the exact comment. Are you going around to each and every subprime blog and dropping this same EXACT comment with your blog in there? You linked your same blog in the last comment that I read.
Sorry everyone... but this is like spam to me. Besides.... subprime got people into homes. Only 10% might go into foreclosure. I am sorry.... doesn't that mean that 90% more people became home owners? Just my .02.
Sorry George... I just had to give my .02. I did a good blog just last week on foreclosures and stats.... it's called education.
Frank, I the time I wrote this Subprime was still a good option for those who had no other choice. Today Subprime has become a lot more difficult to do because of all the change. I do a lot of FHA loans, so I was able to get people into these loans then and now, so the Suprime changes have not affected me much. Suprime still has a place in the market in my opinion, but like every other loan product it has to be used in the right circumstances.
Jeff, your .02 are always welcomed, and that was a good point about Subprime loans.
Mortgage George...
Am I correct that spam tastes better with hot links? :)
TLW...ROAR!
TLW thanks for pointing out that spammer to me, it is gone :)