The Flip Side of the Sub-Prime Story

[photopress:P1000150.JPG,thumb,alignright]Who will suffer most from all of this? Will the people who honored their commitments, and who valued and appreciated the chance the lender took on them, get hurt by all of the “reform”?

No one was more surprised than I, when I got the mortgage and closed on my home. In the end, the lender wanted me to write my profile of “Who I Am” right before the loan funded. I was starting over again in a new city. No proven history of what I might be able to make long term, as an agent in a new place. Coming out of a 20 year marriage, too old to wait until I stablilized my income, arriving with only what could fit in the trunk of my car. Sleeping on the floor at my sister’s in Green Lake while I worked hard to re-establish myself after a debilitating and nasty divorce. Needing a home for my three daughters and grand daughter to come to, hoping I could woo them away from L.A. where they were not doing well, and couldn’t afford to live on their own and be safe.

I worked day and night, seven days a week, and made the payments gladly. The one day a year when all my daughters came together at Thanksgiving, the couple of weeks when my grand daughter came up and we visited the ducks up at the Marina in Downtown Kirkland. Helping them through their hard times with their car insurance and car payments and making my mortage payments. Gladly working 24/7 for the opportunity to prove to them that a woman could make it after divorce, and not just “get by” but have a nice home.

I wouldn’t trade these last two years for anything. The memories in this house with my dearest and most cherished treasures, my girls and my grand daughter. Each of them proud of me and realizing that all things are possible, and life doesn’t get you down unless you let it.

Yes, for the first time in my life I was “sub-prime”, I was “stated income”, I was 49 and starting over. I am the person sub-prime and stated income was made for, and I’ve worked hard to be the person they believed in when that loan funded. And when the news got scarier, I took a second job as Broker of BRIO to make sure I could keep going, even if I couldn’t refi, and honor my commitments.

The day they asked me to write that profile so they could take one last look at who I was to decide if they should take a chance on me, I remembered my Uncle Johnny Rosati. How no one would give him a loan for a truck for his business “idea”. How finally, one bank said yes and he started his business and busted his butt day and night to prove himself worthy of the chance they took on him. How he refused to ever use another bank his whole life, no matter how many people told him he could get more interest elsewhere. He was loyal to that bank until the day he died, because they were the only ones who believed in him when they had no reason to, and no one else would.

Every day I live in my house, every month when I pay my mortgage payments to Washington Mutual, I thank them for believing in me and for giving me my “sub-prime” mortgage. I wake up working. I go to sleep working. I work every single day. I work to be the person they believed I could be, and I worry when I read all the bad news. I worried so much I took a “second job”.

Will I never be able to convert my 2 year arm because of the reform? I don’t know. But I do know that I will pay my mortgage payment as the rate adjusts higher. I’ll work two and three jobs if I have to. I know that they took a huge chance on me, and I know it was the boldest move of my entire life when I took this on.

Every day my girls get a year older, and every day I need to have this house less and less. Every day I thank those who believed in me and took a chance on me, and work hard to honor my commitment to them. Will all this reform close the door on me? No matter. I’ve already made it to the light at the end of my tunnel.

Perspectives: Is this a former loan officer or a customer of a LO/subprime lender?

Evidently, this is circulating in e-mails everywhere. Depending upon your perspective it could be funny or not so funny. On the one hand it could be a former employee of a defunct sub-prime lender or it could be a customer with a toxic loan. Either way this evokes a lot of different views.


There's No Love for the Subprime Borrower

It’s all over the news, we’re hearing about major subprime lenders having to restate their losses and every day, lenders are coming into my office to inform us of changes to their guidelines.   This is all good, right?    It will be tougher to provide loans for home buyers who maybe should be spending more time to learn about budgeting and using their credit cards.    What about the people who are all ready in these programs?

First, allow me to explain the basic dynamics of these loans.  Many of these mortgages are zero down, 80/20s (80% of the loan to value for the first mortgage/20% of the value for the second mortgage).   The first mortgage is typically offers a fixed rate for 2-3 years with a prepayment penalty (the standard is six months interest) that matches the fixed rate period.   In addition, the mortgages may be interest only or amortized at 30, 40 or 50 years.    The rates on these mortgages are completely dependent on credit score. 

When I meet with Mr. and Mrs. Subprime, I advise them of their options of buying now using this type of subprime mortgage or that they can work on their credit, job history, etc. and buy later with a better mortgage program.   Because there are no guarantee of what rates will be (or maybe because they know there’s not guaranteed they’ll clean up their act) and because they want to buy a house now, they often opt for the subprime mortgage.   Once this happens, I heavily stress (or Jillayne would say, I lecture 🙂 —which I’m sure I do) to Mr. and Mrs. Subprime that they have 2-3 years to change their spending habits because once their fixed period rate is over, their mortgage is going to adjust and do so big time.    I let them know that I want them to be in the best position for a refinance into permanent financing (or to have a better mortgage should they decide to sell the home assuming they have any equity) and that the subprime mortgage they are using to obtain their home is temporary financing.  

Many of my clients in these mortgages have done very well and I’m proud of them.   They have taken the responsibility of owning a home and having a mortgage to heart.  I’m able to restructure the original mortgage and improve their situation greatly.   The concern is for Mr. and Mrs. Subprime who just didn’t get the hang of it.   They continued to charge up their credit cards, they bought or leased a new car to go in their new driveway and maybe a new TV, too.   They’ve been sliding ever since the holidays and are now having a tough time paying their mortgages on time.   Maybe they just have one mortgage late.   Their credit is rough at best.   Their fixed period (and prepayment penalty) is over and now they really need to refinance fast because their mortgage has adjusted for the first time—their rate is now 2% higher.  Their situation has gone from bad to worse.    With all the tightening in the subprime market, even if their credit scores and scenarios are the same as when they bought, there may not be a program for them to refinance out of now.   They will be forced to sell (hopefully they have enough equity to pay commissions and other closing costs) or to somehow manage to choke down their increased payments.

I guess this post is a plea of sorts.  If you currently have a subprime loan (especially the type I described) please contact your Mortgage Planner to have your credit reviewed to make sure you’re on the right track to be able to refinance (or have a better loan for when you sell) when the time is due.   Do not assume there will be a program for you if you have not made significant changes to your spending and use of credit cards.   If you’re a real estate agent or loan originator, check in on your subprime clients to let them know of the changes in the industry…see if they need guidance to stay or get on track so they don’t wind up stuck with a higher mortgage payment, being forced to sell or foreclosure.