Everything You Ever Wanted To Know About The Subprime Mortgage Meltdown

Bankrate has posted a special series explaining the sub-prime mortgage meltdown that is currently in progress in these United States of America. Of particular interest is the Consumer Impact article:

About 85 percent of mortgage borrowers have credit scores of 620 or higher. So far — knock on wood — most of these prime customers needn’t worry about being turned down for home loans on the basis of their riskiness as borrowers, so long as they’re willing to let the lender verify their incomes and assets.

Other sections include an analysis of the Federal debate, and “Lender Implosion” which declares that the industry has itself to blame.—MEGHANN MARCO

Subprime mortgage industry meltdown [Bankrate]
(Photo: drewski2112)

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  1. Nemesis_Enforcer says:

    While the article is pretty sobering, the numerous ad’s on the bottom of the screen for refinancing and home loans is funny..isn’t that how they got into this trouble?

  2. indianaguy says:

    while i will agree that sometimes mortgage brokers go over the top, this comment from the article says it best

    “So long as these loans are legal, we’ll continue to sell them,” Cruise says. “Yeah, we do cringe. But so long as people qualify for the loans and they want them — we don’t even have an obligation to educate people on the risks of these loans, although some of us do. You still have the freedom to do things that are stupid in America. Unfortunately, many people are exercising that freedom with abandon.”


    especially the line that says you have the freedome to do things that are stupid. You as the consumer have to be informed.

    this makes me glad that my wife and I got our loan through a bank, they were very honest on what we could and could not afford.

  3. rbb says:

    When all is said and done, no one was holding a gun to the head of the future homeowner forcing them to sign an unfavorable mortgage.

  4. rodeobob says:

    The real culprit of the subprime/alt-a/nonprime lending troubles aren’t the overuse of interest only or ARMs or even the catchy “NINJA” loans.

    What really got the ball rolling (and kept it rolling) was the ability to repackage and resell high risk mortgage loans as “high interest, asset-backed securities” and transfer the liability of the loan away from the borrower who approved the loan and onto an investor who is inadequately informed of the actual risk involved. Once lenders didn’t have to worry about collecting on the loans, they ‘unexpectedly’ became a lot more liberal about who they gave loans to.

    Right now, we’re hearing about the 800% increase in forclosures in California, but that’s just the first part. As these loans start to go south, the impact will hit not only on the front, but the back-side of these loans as mutual funds and medium and large investors start losing their investments in these ‘securities’.

  5. Anonymously says:

    I like this part:

    Some of this could have been avoided if property appraisers had done a better job of identifying situations where home buyers were borrowing more than the houses were worth. But appraisers have long been complaining that they are at the mercy of lenders that lean on them to make sure deals get done.

    Appraisers are told by mortgage brokers and loan officers: “I’ll give you all the work you can handle, but just don’t kill any deals,” says Jonathan Miller, president and chief executive of Miller Samuel Real Estate Appraisers, in Manhattan. “If you kill just one deal, you won’t get any business.”

    This supports my theory that “the value of the house is what the lender wants it to be.”

  6. CumaeanSibyl says:

    Personally, I don’t have much sympathy for the lenders who’re complaining about the proposed federal guidelines, like how dare we expect them to qualify buyers based on the interest rate they’ll be paying for 28 years, not the one they only pay for 2? Maybe I’m just risk-averse, but it seems like better business to make sure that someone’s at least got a prayer of making those higher payments, just in case.

    Also, I’m skeptical about this “get a mortgage and fix up your credit rating” business the lenders are on about. Second chances are great and all, but if you have a bad credit rating because you can’t manage money, odds are you’re still going to have a bad credit rating when you want to refinance. If people who go through debt consolidation and bankruptcy don’t have a great record of learning fiscal responsibility afterward, a mortgage probably isn’t going to help either.

    I guess what I’m trying to say is, the borrowers bear responsibility for their own part in the business, but I don’t get why lenders aren’t just a little more cautious. They have the ability to pull credit reports for a reason, right?

  7. MeOhMy says:

    @CumaeanSibyl:

    If people who go through debt consolidation and bankruptcy don’t have a great record of learning fiscal responsibility afterward, a mortgage probably isn’t going to help either.

    ESPECIALLY if it’s an ARM! People who aren’t financially savvy aren’t going to be helped by being drawn in by the promise of $500k MORTGAGE FOR JUST $12/MONTH! that they have to consciously refinance later on – they need a fixed-rate mortgage that they can just auto pay every month that comes with a stipulation of “Hang on: you have bad credit and no down payment. You can’t afford this $500k house. Go save your pennies for a little while.”

  8. mac-phisto says:

    most of these prime customers needn’t worry about being turned down for home loans…so long as they’re willing to let the lender verify their incomes and assets.


    this is what worries me. there are a good number of qualified homeowners that do not have the ability to verify their income according to the standards of lenders. this is going to impact many small business owners looking to buy or refinance before this fiasco blows over.

  9. Snakeophelia says:

    I was very surprised to see that these subprime mortgage holders aren’t defaulting when the mortgage balloons, but during the first few months. If that’s true, then it means that even at 7%, they can’t afford the houses they’ve been sold. It’s one thing to make a mortgage balloon, and another thing entirely to sell someone a house that is not affordable to them even at a prime mortgage rate.

  10. Wasabe says:

    Oh god, look at that pic. Boxes made of ticky-tacky indeed.

  11. capitalass says:

    Yeah, that photo is frightening.

  12. ElizabethD says:

    I agree about the photo: It’s disturbing on many levels. Even the water looks fake and weird.

  13. Sonnymooks says:

    @indianaguy: That guy used to be a pro-wrestling commentator, seriously.

    And no, I’m not making that up or joking, I just thought it was funny because I know who he is.

  14. billhelm says:

    @rodeobob: while this might be true in some deals, quite a few of them were done with a lot of the risk still on the lenders who were repackaging structured deals. if they start to go south the investors (or the financial intermediaries that represent them) can demand the lender recall the loans and they eat it. that’s partially why so many sub prime lenders are biting it – they didn’t have this risk sufficiently hedged to survive it.

  15. FinanceGuru says:

    @rodeobob: “What really got the ball rolling (and kept it rolling) was the ability to repackage and resell high risk mortgage loans as “high interest, asset-backed securities” and transfer the liability of the loan away from the borrower who approved the loan and onto an investor who is inadequately informed of the actual risk involved. Once lenders didn’t have to worry about collecting on the loans, they ‘unexpectedly’ became a lot more liberal about who they gave loans to.”

    Yeah. You don’t know wtf you’re talking about. Do you really think that complete idiots are buying securitized loans? Or that the organizations who ARE buying them have no clue as to the creditworthiness of the borrowers?

    Also, if the borrowers default w/i 90 days, the originator of the loan typically has to buy the loan back.

    If you don’t know about asset securitization, you’re better off not saying anything about it.