Personal Finance Information

Less than two decades ago, it was very difficult for those in society with bad credit, or low credit, to buy or refinance a home. However, once the market was introduced to them, subprime loans have nearly dominated the real estate market; although their loans have shockingly high interest rates, the subprime lending companies allow almost instant qualification. As if this wasn’t an already shady looking venture, most feel the need to say, “And then came the really big scam artists!” The suddenly widespread access to credit, for an unrealistic, and unfair fee, has opened a market full of get-rich-quick gurus, con artists, and a never ending succession of lies, and possibly even illegal assistance, such as that some independent subprime lenders do not require any documentation, from say, an illegal immigrant.

Subprime predator lenders, as found in a study made by CRL, or, Center for Responsible Lending, are accountable for costing homeowners over nine billion dollars, each year.

Subprime lending companies, target the elderly, low income Latinos, African-Americans, Caucasians, single women, and newly wed couples. These social groups are less likely to qualify for traditional or prime loans, by variants of their circumstances; consequentially, they are seen as less sophisticated by the subprime lending market, to speak plainly, not as intelligent, and therefore easier to be taken advantage of. The statistics following, are not a support to the perceptions of the predatory subprime lenders, it is merely statistical evidence that these social groups mentioned are the people with the most attention being paid to them. If you focus on a social group with persuasive enough advertising, custom made to appeal to the type of people being advertised to, naturally, the objective to acquire those clients with be met eventually.

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What Is A Subprime Lender?

A subprime lender is usually a small company, sometimes independent, but as is usually more popular now, loosely affiliated with a major lending company. When an applicant is declined a loan, the subprime will step in to offer lending from their company instead. However, as they are different, they will rarely identify themselves. The only indication that any lender could pick up on easily, is that the subprime affiliates prices are usually notably higher. If you can qualify for mainstream assistance, avoid the services of a higher priced affiliate. There are those few mainstream lending companies, who do offer both subprime and prime lending. In their case, if one cannot qualify for a prime loan, they will only then drop you to subprime. The strictly subprime companies may refer a lender that is qualified for prime loans, to a more mainstream lending service, but this conflicts with their own financial interests.

Are You A Subprime Borrower?

As explained partially above, a subprime borrower, is one who does not qualify for a prime loan, from a mainstream lender. And why wouldn’t a borrower, or applicant, qualify for a prime loan? Low credit scores, an ever increasing situation in the economy. The rise in subprime mortgage companies, is partially due to the high demand for them. Debt in the United States continues to spread; keeping in business companies that are usually detrimental to already low credit scores. A score somewhere in between high and low, naturally, has about a fifty-percent chance of qualifying for the loan, although, it may increase or decrease based on the down payment, the comparison between expenses vs. income, and the applicant, or borrower’s ability to keep proper records of their finances.

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With all the awareness being circulated throughout many communities, media, and the Internet, you would think that the attractant of subprime loans and lending companies, would have decreased. Also, news of, and news pertaining to the massive surge of foreclosures and rise in payment delinquency, has been circulated just as much as the negative press on subprime lenders in general. What do the two have to do with one another? Expert economists and various mainstream real estate brokers, not to mention, many politicians with connections to the real estate industry have made many statements about the former being the direct cause of the latter. That is, so to speak, that subprime lending is a self-destructive market that also creates very real impact on both the consumer, and the real estate market itself. So, as previously stated, with all this awareness, why are subprime lending companies, both independent, and mainstream affiliated, still receiving so much business?

Some perspectives on the matter are that since subprime loans are mainly marketed to minorities, such as Hispanic-Americans, and recent Hispanic/Latino immigrants, not to mention, other low income families with origins outside the United States, that the language barrier is what keeps them uninformed. However, there is a newly instated agency called the HMNA, or, Hispanic National Mortgage Association that was designed specifically to raise the awareness and break the language barrier that may or may not cause this social group to remain uninformed. So, if it is not a language issue, why the constant popularity, of a mortgage plan that is obviously detrimental to consumers, and the real estate market?

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The Attraction To SubPrime Lenders

In a situation where one has bad, or very mediocre credit, it can seem like all options are closed to oneself; so when the first chance to qualify for a mortgage loan presents itself, many people in the same situation are attracted to the subprime lending market. A borrower with bad credit, and very limited options, if any, will gladly take the route that subprime offers. Traditional, or prime lenders, generally only qualify an applicant with a credit score above a certain mark. Usually that mark is ranged around 620 on one’s credit score. A subprime lender’s major attraction is the valuable service they portray: to help those who would not otherwise qualify for a loan, manage to get one, in order to mortgage a home. They’re also very eager to help; mainly because the subprime lending market, is very profitable to the lenders, and not the borrowers.
Defining A SubPrime Lender

Generally a Subprime lender is an independent company, or company with loose ties to a mainstream mortgage lender. The trend is that more and more subprime companies are affiliating themselves with the mainstream prime mortgage lenders, in order to throw off most suspicions about whether or not their claims are genuine. Naturally, their claims are that they can assure a person, or persons, with bad or low end mediocre credit scores, and qualify them for a loan. A prime lender, offers and qualifies applicants with high end credit scores, usually above the 620 mark, for a variety of kinds of loans. Whereas as generally, subprime lenders specialize in one kind of loan in particular, and that will be discussed later on. Many prime lenders do have subprime divisions, that offer those types of loans, and even though these lenders do share a company name with the mainstream traditional lenders, they can be just as financially destructive as an independent subprime lending company. SubPrime lenders are at a much higher rate, because of their availability.

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Some economists believe, that after the stock market crash in the year 2000, that this has taught investors, that basically all good things must come to an end. The problem, they say, lies in the number of asset classes; such as real estate, gold, hedge funds, stocks, crude oil, et cetera, has been mostly beneficial to the majority of investors both this year, and last year. Last year, for instance, Dow Jones reached it’s highest point after six years. So economists are wondering, if there is a break in this streak of great “luck” for investors, where will the first rift in the stock market occur?

Last year, many people observing the stock market believed that, although most investments were centered around the housing industry, –real estate, and mortgage related investments–, that there would be a major correction coming soon, towards the end of 2006. Obviously, that point was never reached last year, but that does not stop speculation about this coming “stock market crash.” Jeffrey Hirsch is an editor of the Stock Trader’s Almanac, and was reported to claim that, although Dow would peak somewhere around 11,500, it would soon plummet back down, to 8,500, or perhaps even lower. Hirsch also claimed that, “It could be a little more, depending on how ugly things get.”

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