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Why It’s A Good Thing That The Sub-Prime Market Is Back!

Sub prime 3Ok, I know what you’re saying.  Is this guy crazy?  Wasn’t it the Sub-Prime loans that caused the crash of the Real Estate Market nationwide just a few years ago?   Well, yes and no.  Sub Prime loans themselves didn’t cause the problem; it was the particular loan programs sold by unscrupulous banks that were the culprit.  Let’s look a little deeper at our recent past and I’ll explain.

The Sub Prime mortgage was originally intended to help self-employed individuals who could afford a home, but didn’t have a consistent salary.  They were also designed to help small business owners who had their credit hurt by their business and couldn’t qualify for a conventional loan.

So what happened?  The industry got greedy.  Stated income loans were given to people with very little income who couldn’t possibly afford the home they were buying.  Add to that, the Sub-Prime loans that had balloon payments and adjustable rates and you wonder why buyers even agreed to sign the papers.   Maybe it had something to do with the Market that was being inflated and the promises of endless growth and a refinance before the balloon payment came due.  Maybe it was that they could buy a home with 0 money down and then use it as a bank machine as the value climbed higher and higher.  All in all, I’d say there was plenty of greed to go around.  When the values dropped so suddenly and drastically, there was very little incentive for people with no personal money invested into their home, to hang on.  It was actually more prudent to not pay and let the home go into foreclosure, which compounded the problem.

Sub Prime 2Now here we are today wondering how it’s possible that these loans are coming back.  Moreover, it seems inconceivable that this could be a good thing.   Well
consider this for a moment.  For the last few months, property values have stagnated so a stimulus is needed to continue our momentum.  Furthermore, the new versions of the Stated Income loans require a 20 – 40% down payment and a year of bank statements that prove a buyer can actually afford the loan.  This will allow the housing market too grow, but unlike before, for now it is set up to grow safely.  Those who have the money but couldn’t get a loan a year ago because the large banks over compensated for their losses, can now invest in the housing market again.  This will push prices up at a reasonable rate of growth.

My considered opinion is therefore that YES, Sub Prime Loans coming back to the market is a good thing for the housing market, the economy and hard working Americans that are financially prepared to own a home, but had been denied until now.


Published By – Dino Katsiametis

Dino

Leading the industry through his innovative approach, Dino Katsiametis has over 17 years of extensive experience within mortgage, banking and real estate industries. His passion for the collective financial and investment services sector combined with his distinct insight, has catapulted Money Matters with Dino onto the forefront of financial news.

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