Subprime Mortgages-What it means for you
We have heard various bubbles burst for past decade from stock, oil to real estate. Now the buzz word is lending industry and its mortgages. Banks and mortgage companies would sharply scale back lending to two groups: subprime and "Alt-A" borrowers. Consumers with low income and/or spotty credit histories are considered subprime borrowers, while Alt-A borrowers are typically those who fall short of being prime because they lack adequate income documentation.
Fannie Mae and Freddie Mac are issuing new loan guidelines. They are moving away from 100% financing, and limited income documentation loans, and high loan to value investment loans. So many of your less than perfect credit, reduced documentation, or in other words non-conforming borrowers will either need to improve their credit or put money down on homes.
Over 25 sub-prime lenders have shut their doors. It will be a dominoe effect to the sub-prime companies holding these loans and losing money on them day by day. This will likely cause increased delinquency, higher foreclosure rates, and property value declines nationwide. It will get tougher to get loans approved and lot more people will end up renting versus owning a home.
Please feel free to share your thoughts and comments about this change.