Stripped Bare - Beneath the Feel Good Veneer of Subprime Lending

Chapter 11 - Cash in Your Hand, and a Hook

Subprime lenders’ advertising typically trumpeted the following message to borrowers – Bad credit, no credit, no problem, we can refinance your home, lower your monthly payments, and put cash in your pocket to boot.  The fact of the matter was, subprime lenders usually could do exactly what they were advertising they could do.  Pay off some of your debt, and put cash in your pocket too.

Borrowers who had a low credit scores (see Chapter 10), or low credit grades (see Chapter 9), or both, and at least ten percent (10%) equity in their current home, in all likelihood could qualify for a subprime loan.  The dilemma for borrowers considering such a deal was would there be more than just a short term benefit to them?  Or, would the benefit of refinancing with a subprime loan simply evaporate before the new mortgage was recorded at the local county clerk’s office?

There were real and quantitative benefits to utilizing a subprime loan to refinance your home, if you were in troubled financial straits and had sufficient equity in your home which a subprime loan would allow you tap.

It was not unusual for a subprime lender to reduce borrowers’ monthly outgoing payments by two to three hundred dollars ($200.00 - $300.00) per month, and an extra $200.00 to $300.00 dollars in your hand each month could and can go a long way.  Additionally, in many subprime loan refinance transactions, the borrower would walk away with money in their pocket.  What’s not to like about that?

One of the issues not to like about the above scenario is what was not being said to subprime borrowers.  What, in the vast majority of cases, was not being said to subprime borrowers was that they were going to remain subprime borrowers unless they got off the misuse of credit gravy train and began living within their means, and subprime lenders only gave the merest of lip service to this fact, because this fact did not sell subprime mortgages.  But what was not being said, and what was being ignored by subprime lenders, did set the hook for the possibility of future refinances.

Posted by on 04/09 at 05:30 AM

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