Sub Prime Home Loans In the News

by benborden

A Loan Officers Point of View
Me like every one else has been watching the news concerning the so called “Subprime Woes”. Of course all the talk is blaming the lender, brokers and anyone else but the borrower. The fact is during the course of 2000-2005 and even today many, not most, sub prime AND prime borrowers only care about the lowest rate and fees with no regard to how the loan will affect their overall financial well being. There were many times as a loan officer, I lost loans to the adjustable rate sub prime loan officers because borrowers where only interested in “the lowest rate” at the time and not the higher 30 year fixed rate. Even prime borrowers search out the “lowest rate and fees”. Of course this “rate shopping” mentality affects both the prime and sub prime differently. Prime borrowers just end up with possibly the wrong loan program, down payment strategy or rate and lose 10’s of thousands of dollars through out the loans life and the sub prime borrowers risk being much greater with potentially losing their homes.

Of the very few sub prime loans I originated, I would “coach” the borrowers on repairing their credit so they could qualify for the better 30 year rates in the 2 or 3 years down the road. What I have seen from those few loans is that the lower the score of the borrower when taking the loan out the less they worked on their credit. Those that had higher credit scores, 600 and higher and may have qualified for FHA or Community programs but had previous bankruptcy or foreclosure or some other blemish that threw them out of these programs did in fact get their credit repaired and are out of the sub prime arm loan. There is a saying that I have used and I really believe it to be true “once a 580, always a 580.” It’s sad to say but is true on 90% of the cases. Even today, I coach my lower credit score borrowers on improving their credit BEFORE applying and 90% do not follow through with the advice.

Do not get me wrong I do admit that there are unscrupulous loan officers in this business that are just in it for a paycheck and have no regard for the individual home owner or buyer. I am a BIG proponent of the licensing of loan officers. Not just the taking of a test and yearly continuing education, though this and of in itself would be a great benefit, but I am talking about licensing on federal and state level. This would be similar to the investment industry that requires fingerprinting of each Advisor, a SERIES 7 and a state laws test called SERIES 63. More importantly, they have a Federal Form called a U-4 form that stays with the advisor throughout their career. On this U-4 is the consumer complaint history of the Advisor. One or two complaints on this form and the advisor is forced to seek another career because no reputable Broker Dealer is going to hire this individual. Doesn’t this make sense? As loan officers we are handling a person’s biggest financial asset, their home and there are ABSOLUTELY no barriers to entry to this industry.

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