By Tony Howard
The term "Subprime Mortgages" describes customers who may have less than perfect credit, income that cannot be verified or some other factor that prevents them from being considered a Prime Mortgage Customer.
Most mortgages are ultimately to be traded on the stock market. Prime Mortgages, sometimes referred to as Conforming Mortgages, have been traded on the Stock Market for many years. In the early nineties, Lenders began to trade Subprime Mortgages on the Stock Market. These riskier mortgages being traded on the Stock Market helped fuel the Housing Boom that occurred about two to three years ago.
Often times Subprime Mortgages would have periods of 2 to 3 years in which the rate was fixed. After that fixed period the rate could move up or down usually every 6 months. The rate is usually tied to an index (a daily detailed list of what major world banks charge each other for inter bank loans) This index is used to set adjustable rate mortgages.
The idea is that as the index moves so shall your interest rate. There are many variations of this kind of Mortgage. (One should make sure your Mortgage Professional explains in detail how your adjustable rate mortgage works before entering into this kind of transaction).
The mortgage meltdown has occurred because investors in the Stock Market are now not confident that the people who have and would borrow under these Mortgage Programs will not repay these loans. This lack of confidence has happen probably do the high number of loans defaults and foreclosure experience with Subprime lately.
With very few investors to buy Subprime Loans lenders are very cautious in lending to Subprime Borrowers. The days of buying homes with no money down may be a thing of the past, if you are a Subprime Borrower.
If you are in need of Refinancing your existing Mortgage and need more than 90% of the value of your home it may be challenging if you are a Subprime Borrower. Now more than ever it is extremely important to have an experienced knowledgeable professional handling your mortgage transaction.
Tony M. Howard is a mortgage broker at Advanced Mortgage Concepts located at 1031 N. Washington Street, Lansing, MI 48906. His phone number is 517-484-6610. You may also reach him at AMCCASH@AOL.COM.