Subprime Mortgage Lending – Expanded Guidance
March 30, 2010scfm 18 Comments »In June 2007 the federal financial regulatory agencies together issued a Statement on Subprime Mortgage Lending. This statement contained references to an earlier document issued by the Comptroller Office’s for Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision. The latter document, the 2001 Expanded Guidance for Subprime Lending, is recommended unequivocally by the agencies as the defining document to which lenders should turn to find the criteria for considering a borrower “subprime”.
Even in the late 1990s, subprime lending was becoming more and more of a problem. The 2001 Expanded Guidance was an expansion of earlier statements about this issue. The agencies’ focus was the responsible use of subprime lending to assist subprime consumers to win back their credit ratings. Regaining lost credit would enable these people to enhance their financial situations. At the same time, the agencies stressed that lenders who assume a greater risk by lending to subprime individuals must also show evidence of ability to maintain their duty of upholding the public’s trust in financial matters. It is the lender’s responsibility to assess most carefully whether or not the borrower is likely to be able to repay the debt incurred. Painstaking effort is required to create strict rules of underwriting to assist in such assessment. Only when controls like this exist will both borrower and lender enjoy minimized risk of loss.
This Expanded Guidance clearly defined for the first time the criteria used to decide whether a potential borrower will be classified as “prime” or “subprime.” It states that at least one of these issues will characterize a borrower as subprime when the person applies for a loan:
· Low credit score
· Bad credit history, including
· collection accounts
· repossessions
· late payments of invoices
· bankruptcy
· debts that have been written off as uncollectable, called “charge-offs”
· high ratio of debt to income
· decreased ability to pay off the loan.
Further, the document describes these attributes of the subprime borrower:
· has a Fair Isaac Corporation (FICO) credit score of less than 660;
· has collection activity, liens, charge-offs, or judgments within the past two years;
· within the past year, has had two late payments;
· within the past two years, has made a payment that was more than 60 days late;
· has a ratio of debt to income of at least 50%;
· has declared bankruptcy in the past five years;
· has been assigned a score by another credit rating service that would equate to a FICO score of 660.
All lenders use these standards to identify subprime borrowers. Bear in mind that even if you have a FICO score that is better than 660, you will still be considered a subprime borrower if you possess a single one of the attributes listed above.
Expanded Guidance offers a clear definition of lending practices to be considered “predatory.” The agencies in no way insinuate that predatory lending practices characterize all subprime lenders. In fact, it is their belief that benefits for both the borrower and the lender come from using subprime loans that are administered properly. Nonetheless, the public should be made aware that predatory lending practices do exist, and that borrowing at subprime may leave them vulnerable to such practices. In predatory lending, the exchange between borrower and lender is very unequal: the lender gets the borrower’s money and the borrower gets not much of anything!
Most predatory lending practices fall into three categories.
· Many car loans and housing mortgages are made based on assets pledged by the borrower as collateral, rather than on the borrower’s actual ability to fulfill the debt.
· “Loan flipping” occurs when a lender coerces or talks a borrower into refinancing a mortgage, at no advantage to the homeowner, but at great advantage to the lender, who may collect sizeable fees for the transaction.
· Failing to reveal to the borrower all the hidden fees and costs of a loan, and concealing information or providing fraudulent information to the borrower.
· Very often, these practices are perpetrated on vulnerable borrowers, like the elderly, minority homeowners, or low-income families. In many cases, these people would actually have qualified for a mortgage at prime rates; but they are at a disadvantage because of their lack of knowledge.
If you are thinking of borrowing at subprime for a mortgage, you should familiarize yourself with the 2001 Expanded Guidance for Subprime Lending. It is available on the Internet, and is definitely worthwhile reading. It laid a fine foundation for further definition of the responsibilities of subprime lenders and the needs and rights of subprime borrowers.
Question about lending
When would the banks start lending to corporates in India again?Although all of the Indian banks are sitting on enough liquid cash, they are still not lending. If they do lend, interest rates are as high as 14-27% !
How much time would it take for it to get comfortable or at least better for the Indian corporates??
Thanks in advance!
Tags: Definition of Subprime Lending, History of Subprime Lending, Subprime Lending, Subprime Lending Crisis, Subprime Mortgage Lending
Posted on March 30th, 2010 at 6:56 am
Was this made in 2002? =
Posted on March 30th, 2010 at 7:04 am
BALLS
Posted on March 30th, 2010 at 7:19 am
Lending institutions are in the business of making money. At this point, the best return they will get for their dollars is a loan to a business or consumer. Stocks and bonds are too volatile right now. Holding funds in a savings-type account doesn't generate any worthwhile interest. There aren't many other options.
There is much confusion and uncertainty around the tax payer funds. The lending institutions did not get a bunch of money from the government to do with as they please and with no strings attached. The lenders are trying to figure out what they can do with the funds and what strings are attached. Lenders are not really reaping a lot of rewards right now.
Hope this helps. Good luck!
Posted on March 30th, 2010 at 7:46 am
They will start in the next 60 days. They don't want to be blamed if the crisis continues and they did nothing..
Posted on March 30th, 2010 at 8:13 am
there is no more relevant commercial for the 2000’s
Posted on March 30th, 2010 at 9:02 am
lol this is one of my dad’s favorite commercials
Posted on March 30th, 2010 at 11:33 am
You need to contact your State attorney generals office and they are the ones who handle this type of scam.~
Has anyone been scammed out of money from Caldwell Lending Group?
I was guaranteed a $15K unsecured loan from Caldwell Lending Group. I was asked to send $2250 to private lender in Canada via wire transfer. …
Posted on March 30th, 2010 at 2:36 pm
This commercial came out several years BEFORE the recession. Soccer moms and Hummer Dads CANNOT claim that were not warned.
Serves the snotty dumbasses right, IMO.
Posted on March 31st, 2010 at 3:51 am
reguardless of credt history? so i can have a 320 fico score and still get a loan! oh shizzle! do they finance bling?
Posted on March 31st, 2010 at 10:52 am
How true is this for America. When will we wake up and act like adults and take back our lives and our country…
Posted on March 31st, 2010 at 12:37 pm
I really don't know what type of insurance Museums carry but if they have "bailees" coverage, it covers property of others while in their care, custody and control. I would ask the museum. I'm sure they would be glad to answer that part of your question.
Reducing cost is another matter. It it a very valuable painting, and I'm assuming it is based on our question, I wouldn't try to cut corners in order to save a few bucks. You can insure it only against certain named perils, but if something outside of those perils happens, the painting wouldn't be covered. For instance, if you didn't cover it for theft and it was stolen, it wouldn't be covered.
If you want to keep it in the family, why not volunteer to help defray the cost of insurance. Chip in and it would allow them to keep the painting so that you could one day have the burden of insuring it. lol
Posted on March 31st, 2010 at 1:11 pm
The government has to regulate these debtors to within a certain percentage
(example: canada government student loans will do prime + 1% – always.)
it is harder in the us because all the statutes that make america what it is say that government regulation is wrong. this way the rich get richer and the poor get worse.
a free market is a free market and to regulate would change the entire american way of life.
if you've already got your education, claim bankruptcy and screw those guys.
Posted on April 1st, 2010 at 9:16 am
Not hard at all. Lenders cannot discriminate based on age. What they will look at is credit, loan-to-value, qualifying ratios, etc. Have them speak with a reputable lender and get pre-approved so they know what they can qualify for prior to making any move.
Posted on April 1st, 2010 at 12:29 pm
OMG this is the funniest commercial EVER!
Posted on April 1st, 2010 at 12:34 pm
Actually 100k is a small sum and unlikely enough to build an average sized house. The interest would also be VERY high, it would take you many years to pay this off. There is also the problem of collateral, since this is not a construction loan you need to cover it with something other then the property you will supposedly build.
With you borrowing such a small amount of money banks would not be very inspired to risk a year with no payment to discover you are defaulting when the payment is due.
Posted on April 1st, 2010 at 7:32 pm
The problem is not banks not lending to each other, it is banks not lending to people and companies. Lending allows people to buy houses, cars, etc. When people buy houses, cars, appliances, someone has to build them. Thus, jobs are created. In order to build things, you must have not only labor, but also the infrastructure (machinery) to build the things. Companies need capital to buy the machinery to put the people to work to build things. If the banks don't lend, then the companies can't invest and create jobs, and nothing gets built, so no one can buy anything.
If you think about building one house (then multiply by millions), you can see why people buying new houses (needing credit) is important – in one house, you need the wood to build the house (providing jobs to lumbermen), you need the wallboard, nails, etc. (providing factory jobs), you need the plumbing, heating and electrical, appliances, etc. (more factory jobs), then you need to landscape (agriculture or research jobs for the seed, turf, plants, etc.). Then, these folks who are put to work to supply the stuff to build houses spend their money at local restaurants, grocery stores, car dealerships, appliance stores, etc., creating additional demand (and hopefully paying back old debt). This multiplies through the economy.
So, banks loosening credit is seen as a way to invite investment in the economy, creating jobs, and dragging us out of the recession.
Posted on April 2nd, 2010 at 2:02 am
I am Mrs Amy John,currently living in texas,USA.I am a widow at the moment with three kids and i was stuck in a financial situation by may 2009 and i needed to refinance and pay my bills.I tried seeking loans from various loan firms both private and corporate but never with success,and most banks declined my credit.But as God would have it,i was introduced to a man of God a private loan lender by name Mr Endurance Dawn who gave me a loan of $28,000USD and today am a business owner and my kids are doing well at the moment.So dear,if you must contact any firm with reference to securing a loan with low interest rate of 3% and better repayment plans and schedule,please contactMr Endurance Dawn.He doesn't know that am doing this but am so happy now and i decided to let people know more about him and also i want God to bless him more.You can contact him through his email at endurancelendingfirm@gmail.com
Posted on April 2nd, 2010 at 9:11 am
This is the funniest shit ever.
Like my car? It’s NEW.
LOLOLOLOLOL!