Subprime loans can't be easily rewritten

Subprime borrowers threatened with foreclosure because of big increases in their monthly payments won't find it easy to get relief from their lenders, even if the lenders are willing, a top banking regulator said Tuesday. Refinancing into a more affordable loan may be the best option for those who can, said Sheila Bair, chairman of the Federal Deposit Insurance Corp. "Borrowers should explore all financing options that might be available," she said. Those with adjustable-rate loans should ask about fixed-rate mortgages. Bair testified at a hearing of the House Financial Services Committee on subprime foreclosures. "We are on the precipice of a mortgage tsunami of foreclosures unless immediate intervention occurs," said David Berenbaum of the National Community Reinvestment Coalition. More than 14% of subprime loans were delinquent at the end of 2006.

Subprime loans can be easily restructured.

Since subprime loans are folded into relatively complicated CMBSs, it takes financial expertise to restructure them.

This means banking fees for the financial advisors who restructure them.

Which means that if investors really need them to be restructured, they will be - and quite quickly.

And yet this morning I heard DiTech offering a nice fixed low interest refi. Folks with lower credit scores can get loans at higher interest rates. Work on improving their credit and then refi again at a lower rate, (if it is even available then).

When hubby and I bought our first home in 1983 interest was 13%. We bought the last home in a new tract after the sale to others fell through. The tract had closed their sales office, and were happy to see us come along. As an enticement for us to buy, the developer bought down the interest rate to 11%. I think it cost him about $2,000.00. If the buy down option is still available, that would be a good option for some.

Now we are paying 6% on a home where 75% of the value is equity. We plan on selling this year and moving to a mountain ranch that we own free and clear. We are hoping to get enough from the sale to help both of our kids get into their own first homes and still have plenty to supplement our (working at the ranch) retirement.

When the kids do get their homes, I will advise them to get the lowest fixed rate loans possible. The negative amortization loans are insane and predatory on the part of the lender.

Most people have some business sense about seeking the best mortgage available. However, I remember when I was in the Army, and I was amazed at how many soldiers used the local bank rather than the credit union that always had better rates for savings and credit. Some people are just too young, stupid or careless on business matter. Eventually, they learn.
With the Internet, competition allows an individual to shop for just about everything competitively. Unfortunately, the people hurt the most by subprime are the people with poor credit that pay higher rates because of their credit rating. Which comes first the chicken or the egg (poor credit rating or high rates)? I would opine that poor credit ratings generally are caused by poor behavior, like not paying your bills on time, etc. I was relatively poor during college and grad school, but I always paid my rent and loans first, before booze, eating out or playtime.
I am not against consumer protection. Our government has a lot of rules to protect people from making bad decisions, but people will still make bad decisions.
I think buying a home is almost always a good decision, but of course the exact home purchased or the exact financing may be the problem. Also, it may be the timing of the problem.
Refinancing your home with a variable rate to buy a vacation home or expensive RV probably isn’t smart, especially if the rates go up and the property values decline.

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