Archive for December 21st, 2009

Subprime Mortgage Refinance

Subprime mortgage refinance refinance options keep shrinking, and for those that are in subprime mortgages, they may have a tough road up ahead. Think abou this. There is currently teh Obama plan to help save homes, but what is happening is that banks are so inundated with people trying to get bad credit refinances, or trying to do what they can to get a mortgage loan modification, that they are actually not able to help everyone.

Because of this, many people that could have been helped find themselves in forclosure in stead of getting help with the making home affordable program.

The big problem looking out on the horizon is the adjustable rate loan recasting that is going to start happening in 2010.

We are going to see a huge influx of mortgage loan defaults becauxe of people who got subprime mortgage loans and were not able to make the payments when the payment balooned.

For many, the mortgage teaser rates got us in the first wave of financial crisis, but the recasting that is coming up, will make matters worse. Every year starting this, we will see mortgage rate recasting, and many people unable to make their payments.

In a recent article from

Lenders have abruptly stopped offering the most popular type of subprime mortgage refinance. Credit-challenged borrowers suddenly have fewer options.

“Many borrowers are not going to be able to refinance,” says Deborah Goldstein, the executive vice president of the Center for Responsible Lending.

The consumer watchdog group has criticized loose standards for subprime mortgages, which are home loans for people with problem credit — generally, with credit scores below 620.

Over the past few years, the most common type of subprime loan has been an adjustable-rate mortgage known as the 2/28 ARM. Since mid-July, five of the six biggest subprime mortgage lenders stopped offering 2/28 ARMs. Suddenly, there’s a shortage of the type of mortgage preferred by about 60% of subprime borrowers.

“We think it’s a good thing for consumers,” Goldstein says, because too many 2/28 ARMs were underwritten without regard to whether borrowers could afford to repay them. “So we think it’s positive that lenders are going to stop offering that product. It doesn’t mean they’ll stop offering subprime loans.”

A 2/28 subprime ARM has a low initial rate that lasts two years. After that, the loan resets, which means that the rate is adjusted upward or downward. At the first jump, the rate can conceivably climb 2 to 6 percentage points, causing monthly payments to skyrocket. (In practice, the first rate jump is usually on the smaller end of that scale, but it can keep rising every six or 12 months after that.)

So, the question on everyone’s mind, is what is going to happen to all those people who are currently scraping by, and able to make their payments, and don’t really understand what is going to happen when the mortgage rate recasts and suddenly they can get a subprime mortgage refinance?