A subprime mortgage, is a type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans due to less-than-perfect credit history. Lenders charge a higher interest rate to compensate for potential losses from customers who may run into trouble or default.
Subprime mortgages are designed for borrowers with credit scores under 620. Most consumer have a credit score in the 600s and 700s. Someone who is constantly late paying bills, especially by 30 or 60 or 90 days or more, will have a lower credit score. If the FICO score falls below 620, that consumer is in subprime mortgage territory.
Few lenders will use the term “subprime” to describe your loan, because it’s considered bad salesmanship (How would you like to hear you got a bad credit loan?). You might hear the word “non-prime” or, more likely, nothing will be used to describe the mortgage as subprime.
Mortgages for people with excellent credit are a commodity, with rates that don’t vary much from lender to lender for equivalent loans. That’s not the case with subprime mortgages. Offers will vary widely from different subprime lenders because they have different ways of weighing the risk of giving you a loan. For that reason, it’s important to comparison-shop when your credit score is less than 620.
The reason behind the 2007 credit crunch and the subprime meltdown is that some lenders got too carried away in the way they under-estimated the risk of giving out loans and many home owners became unable or unwilling to meet financial commitments leaving lenders without a means to recoup their losses. 16% of the estimated U.S. $1.3 trillion in subprime mortgages were in default as of October 2007, or approximately $200 billion. Borrowers need to be aware there are multiple adjustable rate mortgage relief plans that they can potentially qualify for to help them save their homes.
To get the best possible deal, find out your credit score before looking for a mortgage (By law, it’s free to check it once a year), and ask people whom you trust for referrals to mortgage lenders. Comparison shop by going to at least two mortgage brokers or lenders before singing for a mortgage.
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1 Lawsuits Against Predatory Lending | Mortgage Foreclosure Litigation Resources // Nov 20, 2007 at 3:45 pm
[…] broker firms Universal Mortgage, IRA Mortgage and Creative Mortgage placed the plaintiffs in subprime loans instead of the best loans possible, then took undisclosed and excessive commissions from […]
2 Mortgage Foreclosure Statistics in the United States | Mortgage Foreclosure Litigation Resources // Nov 20, 2007 at 9:15 pm
[…] be more than 1 million foreclosure proceedings started this year, with 620,000 of them dealing with sub-prime loans made to people with poor credit. Some analysts say a much larger number of mortgages are headed for […]
3 Freezing Interest Rates on ARM Mortages Isn’t Going to Be Easy | Mortgage Foreclosure Litigation Resources // Dec 4, 2007 at 9:01 pm
[…] been widely reported, that the government is working on a plan to broadly rework adjustable rate mortgages (ARMs) for all borrowers who qualify and freeze their interest rates before they jump to unaffordable […]
4 Law Firm Forms Subprime Litigation Practice Group | Mortgage Foreclosure Litigation Resources // Dec 10, 2007 at 8:02 am
[…] LLP announced the establishment of a new practice group in the wake of the collapse of the subprime mortgage industry and the continuing revelations of misconduct by mortgage lenders, bankers and rating […]
5 Mortgage Meltdown: The Real Store Behind the Rate Freeze | Mortgage Foreclosure Litigation Resources // Dec 10, 2007 at 10:15 pm
[…] 10 times their market worth. The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks […]
6 Industry Wide Writedowns Top $46 Billion (Wachovia, BofA, WaMu, PNC) | Mortgage Foreclosure Litigation Resources // Dec 12, 2007 at 8:52 am
[…] by the weakening housing market and rising delinquencies and defaults among mortgages, especially subprime mortgages and home equity products. Subprime mortgages are loans typically given to customers with poor […]
7 Wells Fargo Sued by Baltimore For Foreclosing More on Minorities | Mortgage Foreclosure & Refinance Resource // Jan 8, 2008 at 11:49 pm
[…] California-based Wells Fargo Bank mortgage provider for what the city says has been a pattern of higher-interest subprime mortgages to blacks more frequently than to whites and that the practice, known as reverse redlining, which […]
8 Latest Lawsuits: Freddie Mac in Ohio, Foreclosure Avoidance Scam in Florida | Mortgage Foreclosure & Refinance Resource // Jan 24, 2008 at 6:34 am
[…] of Ohio’s pension funds to recover billions of dollars lost as a result of the collapse of the sub-prime mortgage industry. OPERS was the Lead Plaintiff in an earlier case against Freddie Mac and won a $410 […]
9 Spitzer’s Mortgage Relief Plan in Jeopardy | Mortgage Foreclosure & Refinance Resource // Mar 13, 2008 at 9:23 am
[…] a proposal to offer protection to homeowners who may be at risk of losing their house due to the subprime mortgage […]
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