Lancaster County PA Realty Check: "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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