On AOL.com this week, the Internet-based loan company LendingTree offered “Bad credit options” and a $425,000 loan for only $1,376 a month. And Countrywide Financial, the nation’s largest mortgage lender, declared, “Bad Credit? Call Today. Refinance or Tap into Your Home’s Equity” in an online ad from its Full Spectrum Lending Division.
No-money-down mortgages and subprime loans that cater to people with spotty credit are quickly disappearing as lenders tighten their standards in response to a rise in foreclosures. But you wouldn’t know that if you looked at the ads that some banks and loan companies have placed on the Internet and in newspapers, including this one, often right next to the very stories chronicling the meltdown in the mortgage industry. So what’s with the mixed messages?
Okay, balloon loans out, just whopping interest rate in, 700 point credit score, 6% interest, 600 – 650 point 6.5% interest 475 points then 8.5% fixed rate 30 year.
If the home buyer can afford it, the TI part will not go up and the PI will actually be stable for a few years. So safe bet for this market and risky debtor will just pay for it the rest of their life.
If it gets the creditor through the year, thing will stabilize and they’ll offset some of that risk in the higher than normal interest. This is a repeat of 1993-94 when we were regionally in a similar market. At that time one realtor also financed homes, it seemed to me like they were have rental company, for they’d take risky clients didn’t require have the stuff I went through (home inspections, surveys and the like) — so two months after 7.35% 30 year conventional (’95), a co-worker with a bankruptcy with this group at 8.5% with $5K down. My guess if he defaulted the realtor would foreclose, clean it up, backcharge all expenses and go through the process again.
This is why residential market crashes have been softer than commercial ones in my experience.
I noticed such adds on our local radio yesterday. One wonders if the loans are really being made, or if the ads are just being run in order to bolster consumer confidence against the constant barrage of bad news in the papers.
The ads were likely ordered a few weeks ago, before the whole mortgage climate changed.
CStan, if the lenders adopted the 25% of take home as the standard for home loans, we would be in a depression. At least in high cost states lenders still approve loan with debt ratios of 45, 50 , or even 55%. At least 75% of those borrowers have debt ratios over 25% of takehome. Not saying whether that’s wise, just that it’s the way things are.