Subprime loans not only culprit in mortgage mess
It’s easy to blame the country’s soaring foreclosure rates and high number of mortgage defaults on subprime loans. After all, these are the loans lenders make to borrowers with not-so-stellar credit. It makes sense that these are the folks who would struggle to pay back their loans.
But don’t be so quick. The country’s mortgage mess is a result of a lot of people taking out stupid loans. Many of these people have fine credit. They just took out a loan that made little sense.
Here’s the basic problem: Because rates on mortgage loans have been so low for so long, many borrowers took out adjustable-rate and interest-only loans so that they would be able to get into a home that was bigger and nicer than one they’d usually be able to afford. Unfortunately for them, adjustable-rate and interest-only loans come with an interest rates that is artificially low for a set period of time. After that period ends, the loan adjusts, usually to a rate located closer to current market conditions.
That means a higher mortgage payment. And unfortunately, many of these borrowers — with their high credit ratings and all — couldn’t afford their new monthly payments.
Let’s not blame today’s mortgage problems entirely on those folks with poor credit. I know it’s easier to do that. It’s just not accurate.
Tags: defaults, foreclosures, subprime-lendingRelated Stories
POSTED IN: Buying a Property, Insights and Commentaries, Mortgage
1 opinion for Subprime loans not only culprit in mortgage mess
Financial News Around the World » Subprime loans not only culprit in mortgage mess
Dec 17, 2007 at 7:12 am
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