Mortgage Blog

As you know, the overall real estate and mortgage industry has changed dramatically over the past two years. While numerous factors have caused this to happen, I believe that the major cause was the availability and subsequent intense marketing of the “sub prime” loan.

Essentially, the term “sub- prime”  means a home loan that is made to borrowers who have substandard credit, income and/or assets. These loans typically target clients who could not purchase a home without the use of these lesser loans. These loans generally have a two year commitment at a greatly reduced interest rate. At the end of 2 years, the loan rate changes to a very high rate, this causes payments to increase – sometimes doubling the payment amount. For most families, a large increase to your monthly debts would be devastating; thus the large increase of foreclosed properties nationwide.

So who is to blame? The answer is complex: the lender, the borrower, and the person who arranged the loan are all to blame to some degree.

• The lender for creating, marketing and pushing loan programs that are not in the best interest of the borrower.
• The borrower for not reading or understanding the fine print on some of these loans
• The loan officer for not explaining or not understanding the financial risks that these loan pose.

In most cases, the loan officer has the ultimate responsibility for this problem. Borrowers rely on advice from loan consultants in order to make an educated financial decision. They trust that the recommendations are correct. Unfortunately, few loan officers had their client’s best interest at heart. Fortunately, due to the current downward trend in the mortgage industry, many of these same loan officers have left this business for other lines of work

That is not to say that the problem has been solved, just that it is a step in the right direction.