Posted by A S Johnson on 5/11/11 2:06pm
Msg #382890

Sub-Prime loan coming back

On the Rush talk show this am, he reported the current administration is pushing to re=establish sub prime mortgages for low income people

Reply by MikeC/NY on 5/11/11 5:25pm
Msg #382919

I would wait to hear this from a much more reliable source of information (with backup documentation) before announcing that it's a fact...

Reply by mwm143 on 5/11/11 6:07pm
Msg #382925

Everything that comes around, goes around....

Have you seen the terms of a typical BOA modification? Ex: Remaining term ( say, 20 yrs) amortized for 39 years. Big fat balloon payment due in 20 years.

Reply by JanetK_CA on 5/12/11 2:02am
Msg #382947

Completely agree, Mike. Especially when it comes to the "current administration", Rush doesn't seem to worry about letting the facts get in his way. [I know, this should be over in JP. I just couldn't resist. ] After all, he's admitted that he's in the entertainment business...

Reply by Susan Fischer on 5/11/11 10:05pm
Msg #382942

SubPrime Sharks, AarrUUgaH, AarUUgaH! Bad dogs, don't

pet.

Once burned, twice shy, as they say.

jmho

Reply by ReneeK_MI on 5/12/11 6:26am
Msg #382948

Taking this a little further than hype-bites ...

The 'subprime' discussions right now in certain political venues is in reference to this [see link], which in reality is a report on red-lining:

http://www.businessweek.com/magazine/content/11_20/b4228031594062.htm

Please understand, there is a world of difference between "subprime lending" and "predatory lending", as well as red-lining practices. Subprime is literally any borrower with a less than prime credit risk. Currently, the Fico score criteria is ranges roughly from 630-680 (depends who you ask) - less than that, and you're subprime. (There are many factors to grading risk & a Fico is just one of them, but I'm keeping a VERY complicated topic as simple as possible).

Subprime lending is not inherently 'bad' - predatory practices are (and these have been hugely impacted by more strict regulations).

Red-lining is an entirely different animal, but relates consequentially. It is a practice of lending discrimination against particular areas viewed as high-risk (credit-wise). An example of the potential for economic harm is easy to see here - Detroit, as the whole world knows, is suffering from 20% unemployment and massive housing value losses. On the bright side, there is an impressive re-growth going on within the art community (attracted to the many lofts, low housing prices, etc). Once a phenomenon like that begins - like attracts like; if you build it, they will come. IF there were an area that would have 'red-lining appeal', Detroit would win - and if lenders refuse to lend within that area, the re-growth potential would collapse.

However - because subprime does exist and red-lining is illegal - if a viable/qualified borrower wanted to buy in Detroit - he might not be offered the prime interest rate due to the (real or perceived) added risk of further loss of collateral value, but he WOULD still be able to obtain a mortgage. He would also be able to do that w/out predatory practices attached to it.

Thinking about that scenario, I think one can see how hugely impactful red-lining can be to whole communities AND how valuable 'below-prime' lending can be. IMHO.

Reply by janCA on 5/12/11 9:03am
Msg #382957

Insightful, to say the least, Renee. Thanks. n/m

Reply by A S Johnson on 5/12/11 9:41am
Msg #382967

Was this not the same solution to the complaints that lead to the subprime melt down?
No this is not political. If you want political I be glad to give you a time line history of the orginal problem and who the players were.

Reply by ReneeK_MI on 5/12/11 10:00am
Msg #382969

I really don't think it was

Subprime always existed but opened up more in the 70's (with deregulation). The word "subprime" is often used too broadly, encompassing too many things like 'creative lending' and particularly predatory lending.

Just because a borrower is categorized into sub-prime products does not arbitrarily mean that product will be a 'liar loan', or a loan they can't afford to pay back, or that they are frauding anyone. It ONLY means that one of the credit criteria is sub-par - their Fico score, or maybe the collateral, or their new job that they finally got isn't seasoned long enough or maybe that 5 month gap in employment before they finally did get that job isn't giving the lender warm fuzzies.

I do think the reason it's so easy to use the term "subprime" as a catch-all is because lending IS very complicated and because the 'perfect storm' that happened did illustrate how everything is connected (borrowers, lenders, secondary markets, banking/investments, Wallstreet ...)

IMO ...for the precise 2 cents that it's worth, it wasn't exactly savvy, slick borrowers pulling layers of wool over those poor, unsuspecting lender's eyes that caused the economy to collapse and the first dominoe that affected the borrowers wasn't so much their loan product as it was their loss of income. Until they lost income/jobs - the default rates were such that Wallstreet couldn't eat that *stuff* fast enough.

Reply by janCA on 5/12/11 10:34am
Msg #382975

Two words: "INSIDE JOB". n/m

Reply by JanetK_CA on 5/13/11 2:27am
Msg #383065

Thanks for the excellent clarification - 2 great posts! n/m