Lancaster County PA Realty Check: "Subprime" Need Won't Go Away

"Subprime" Need Won't Go Away

There has been a great deal of negative publicity about the subprime mortgage industry.  High interest rates and the adjustable rates that are now resetting have been a major cause of foreclosures and the unrest in the housing market.

Don't misunderstand me.  There's plenty of blame to go around.  Many borderline borrowers went way beyond common sense in the houses and mortgages they committed themselves to.  Many real estate agents did not adequately prepare their buyers for the worst cases possible in their mortgage terms.  And many loan originators were only too happy to have more transactions provided by the extremely liberal past credit requirements, even if the resulting loans would be riskier.

Having said that, there is now a concerted effort in the media to find blame and point fingers.  There is certainly a place for reasoned analysis of what happened.  As it is said, those who are ignorant of history are doomed to repeat it.  But there is also a risk in going overboard.  The sensationalism is pushing lenders and buyers way too far in the opposite direction.

Markets are driven by alternating cycles of greed and fear.  Right now we're in a fear cycle.  Lenders have overreacted by making some qualification standards too strict.  Many buyers, too, are fearful of making any commitment in such an atmosphere.  It may take a while, but the pendulum always swings back around again.

There was (and still is) a need for what used to be called subprime lenders.  We can't use that term anymore because of the stigma attached to it.  There were indeed dishonest opportunists in the industry who overcharged borrowers and sneaked insidious terms into their contracts.  But that doesn't mean that the need for risk-priced mortgages has disappeared.

There always will be a continuing need for higher risk loans to higher risk borrowers at a commensurately higher rate  of interest or fees.  The renewed popularity of FHA shows that this market isn't going away.

And for buyers with good credit, the traditional mortgages are still available, with the best interest rates in years. 

If you would like a no-obligation consultation on the real estate market or mortgage situation in Lancaster County, PA, please feel free to call me at (717) 951-5552.

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Brian Schulman offers expert personalized real estate representation and services in Lancaster County, PA.  To contact him, visit http://www.FindLancasterHomes.com/

 

Brian Schulman offers expert real estate representation for buyers and sellers of homes in Lancaster County, PA.  To learn more, visit http://www.FindLancasterHomes.com/

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Comment balloon 8 commentsBrian Schulman • April 13 2008 12:54PM

Comments

Right on Brian!  I couldn't agree more.  One extreme has now fallen the way of the other.  Soon, at least I'm hoping, clearer heads and common sense will prevail.  As far as Sub-prime, the need will always be there and an outlet will always exist in my opinion.
Posted by Jason Sardi, Your Agent for Life (Auto & Home & Life Insurance throughout North Carolina) over 10 years ago
Brian - well said, yes not everyone will qualify for the conventional loans, so the need for the unconventional will always be there.
Posted by Jennifer Fivelsdal, Mid Hudson Valley real estate connection ( JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571) over 10 years ago

You are so right Brian...I just don't understand why all of theses assumably intelligent decision makers can't see it too...they are in business to lend money so thay can make money....right now neither is happening!

Let's just hope it doesn't take too long...

Posted by Joan Mirantz, Realtor, GRI, CBR, SRES - Concord New Hampshire (Homequest Real Estate) over 10 years ago
Jason, the reason subprime was higher priced in the first place was because it's riskier.  Some of the most motivated buyers are the riskiest ones.  As long as the pricing is risk based and fair, both lenders and borrowers should be free to enter into agreements with their eyes open.
Posted by Brian Schulman, Lancaster County PA RealEstate Expert 717-951-5552 (Coldwell Banker Residential Brokerage, Lancaster PA) over 10 years ago
Jennifer, without non-conventional loans available, sellers will find fewer buyers and lower equity in their homes - which is exactly what is happening right now.
Posted by Brian Schulman, Lancaster County PA RealEstate Expert 717-951-5552 (Coldwell Banker Residential Brokerage, Lancaster PA) over 10 years ago
Joan, unfortunately, fear is more powerful than greed.  Lenders are more afraid of losing money - or even worse, being crititicized by their superiors - than by the prospect of making future loan profits.
Posted by Brian Schulman, Lancaster County PA RealEstate Expert 717-951-5552 (Coldwell Banker Residential Brokerage, Lancaster PA) over 10 years ago
You are right about the need for the sub-prime.  I have 2 excellent buyers that fit into that range.  Tough credit, but cash on hand and good jobs.
Posted by William Feela, Realtor, Whispering Pines Realty 651-674-5999 No. (WHISPERING PINES REALTY) over 10 years ago
William, eventually products will be created to serve this important demographic.  As long as prices can be based on risk, there will always be someone willing to take a chance on making a profit from the subprime borrowers.  It may take a while for investors to get over their fears, though.
Posted by Brian Schulman, Lancaster County PA RealEstate Expert 717-951-5552 (Coldwell Banker Residential Brokerage, Lancaster PA) over 10 years ago

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