Stripped Bare - Beneath the Feel Good Veneer of Subprime Lending

Chapter 7 - Churning in the Equity Threshing Machine

As I noted previously, many subprime refinance solicitations were simply haphazardly scattered in the hope that a new mark would be induced to call the offered 800 number for a “free” mortgage analysis.  And why not cast these solicitations far and wide?  Individuals’ personal financial situations are changing daily, whether due to personal financial and credit mismanagement, or deteriorating economic conditions.  Individuals who may have been flush with cash just months ago, may all of a sudden become strapped for cash, weighed down with credit obligations they are no longer able to honor, leaving their credit score plummeting, and turning them into candidates ripe for a subprime loan, and the equity threshing machine.

But what about those individuals who were currently in a subprime loan and who were often bombarded with daily offers to refinance their home once again?  Individuals who had already bargained away five percent (5%), ten percent (10%), or more, of the equity in their homes just to cover lender fees in exchange for a subprime loan bailout of their precarious financial situation.  Why were these current subprime borrowers being solicited to refinance, again and again, into another subprime loan?

Do not get me wrong, here, being solicited to refinance your home is not, in and of itself, a bad thing.  The issue here, was a large percentage of the individuals being solicited to refinance again and again, by subprime lenders, were current subprime borrowers whose credit history and scores had not improved since their last refinance, and who had already traded good percentages of their home equity for a false sense of financial security.

Unfortunately, for the majority of current subprime borrowers, due to both a lack of elapsed time since their last refinance, and more importantly, due to the fact that most subprime lenders did not require that borrowers’ delinquent, or “bad” credit references, be corrected or repaired in order to be approved for a loan, remained subprime borrowers.

Posted by on 04/02 at 08:25 AM

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