Subprime Mortgage Lenders Absorb More Risk

2007-03-08 10:33:40

( Financial )



If you have been shopping for a loan with mortgage lenders and cannot get the financing you need, you may want to try subprime mortgage lenders. The prime direct mortgage lenders may have denied you the loan you sought because you:

• have good credit but have more debt than prime mortgage lenders allow;
• cannot meet the income and asset requirements of prime lenders;
• wish to buy nonstandard property that prime lenders do not regard as acceptable collateral; or,
• need super jumbo loans in order to buy very expensive homes.

Subprime mortgage lenders are able to extend loans to you because they have more flexible lending standards than prime mortgage lenders. In the process, subprime mortgage lenders also take more risk. Consequently, you will pay higher interest rates and fees on your subprime loan.

Unlike the best mortgage lenders, subprime mortgage lenders are more aggressive in servicing because of higher loan delinquency rates. The higher interest you pay, in effect, helps subprime mortgage lenders to recover losses from delinquent loans.

Subprime mortgage lenders are also more likely to impose prepayment penalties, balloon payments and other terms. While these features help offset their risks, they can prove burdensome to you. It is wise therefore to look for reputable subprime mortgage lenders.

Many of the top ten mortgage lenders have subsidiaries operating in the subprime market. If you take time to shop around, you will be able to find them. These affiliates of direct mortgage lenders may be able to offer you better deals.

Watch out for loan officers who are too aggressive to get your loan and may even encourage you to falsify information required on your loan application. These are early signs of representatives from subprime mortgage lenders with predatory lending practices.

There are many of them out there and you must be careful.


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