Subprime Lending – Another Perspective to Consider

I can’t help but wonder as to why politicians and the news media are so intent on blaming subprime lenders for changing conditions in the mortgage market. Why can’t people take more responsibility for their own personal financial decisions?

The sub-prime mortgage market has taken a real beating in the last few weeks. More and more investors are pulling away from the market. Wall Street is cutting-off lines of credit left and right. But ask yourself, is this the whole picture, the totality of the situation? I honestly don’t think so. Let’s face it, many borrowers were less than prudent in terms of over-extending themselves financially. Unfortunately, some real estate investors and borrowers have been doing and saying amazing things to get their hands on a property and a corresponding loan. Purchasers who jumped on the red-hot Las Vegas real estate bandwagon without the proper education, guidance and financial discipline are the ones who are now in trouble. It’s a safe bet that you know (or have heard of) someone who cannot make their current mortgage payments. Put simply, they have not managed their credit potential in a prudent fashion.

A typical non-prime loan is fixed with a hard prepayment penalty for a period of two or three years. This gives the borrower that two or three year window to work on their credit and financial profile. If handled correctly, the two to three years would be used to improve credit scores and debt ratios. After this “opportunity window”, borrowers should ideally be in a position to refinance into a prime rate loan. Sadly, I have noticed that for some borrowers, the prudent advice provided by true lending professionals (such as myself) ends up forgotten immediately after the close of their new Las Vegas home loan. Consequently, the two to three year “opportunity window” flies-by……but the client’s financial profile has not improved. Clients need to be continually reminded that their future depends on making prudent and productive financial choices after the closing of their loan.

Subprime mortgage lenders serve a great purpose in a dynamic economy. But the moral of this story is simple; mortgage products should be utilized prudently and in the way in which they were intended and designed. This is the type of advice and guidance all my clients receive. I hope your mortgage professional does the same. If not, maybe it’s time we had a chat.

Carl Christensen is a Home Loan Consultant with MJM Home Loans powered by Countrywide. He can be contacted at

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