The US subprime market has gained substantial importance lately to the world at large. In the past, the practice of subprime lending has been particularly important for borrowers who are denied credit by lenders due to their poor credit records.
Risk is the prime feature of US subprime market. Unsatisfactory credit history, high rates of interest and unfavorable financial states of affairs distinguish the subprime lending from other types of lending activities. As the term “subprime” suggests, the subprime market deals with lending processes in which the financial conditions of the borrowers are less than perfect.
Subprime auto loans, mortgage loans, transactions through credit cards, and other imperfect lending practices come under the umbrella of subprime market.
Variations in Subprime Mortgage
Subprime mortgages are classified in accordance with the various categories of consumers who receive the advantages derived from subprime lending. According to the rules of the US Department of Treasury in 2001, US subprime mortgages cater to the financial requirements of borrowers who are plagued by severe financial problems such as bankruptcy, poor repayment capacity and huge repayment obligation. The credit scores designed by FICO, which rank the borrowers on a credit scale of varying from 300 – 800, assign less than 620 to the subprime borrowers.
Major variations of subprime mortgages:
Pick a Payment Mortgage: It provides borrowers with the option of selecting modes of monthly payments. Interest only, total payment and minimal payment are the three available options.
Interest-only Mortgage: This type of subprime mortgage has the provision of interest payment obligation only, usually for a time span of 5 to 10 years.
Mortgage with initial fixed rate: In this type of subprime mortgage, the rate of interest that is initially fixed can be changed with the passage of time. As a result, the mortgage rate turns into a variable rate.
The last category of subprime mortgage has gained substantial popularity in the US subprime market since the early part of 1990s. The 2-28 loan is the lending instrument that is extensively used as a last option of subprime mortgage. The 5-25 and 3-27 are two preferred varieties of the 2-28 subprime mortgage loan.
US Subprime Market
The performance of US subprime market was satisfactory for some time. The subprime mortgage lenders faced the associated risks of operation through the realization of market demand for subprime loans. However, controversies have always been an inherent problem for US subprime lenders. Opponents of subprime lending have pointed towards the predatory lending that is prevalent in the subprime market of the United States.
Examples of problems in the US subprime market are discrimination of mortgages on a racial basis, controversies associated with seizure of security acting as collateral, non-payment, and foreclosures. These issues have restricted the domain of the US Subprime market. The crisis in the US subprime market started to gain prominence the last months of 2006.
Importance of Mortgage Brokers
In every developed country, the function of a mortgage broker has become indispensable. On behalf of the mortgage lenders, the mortgage brokers perform a number of tasks making it is easy for the mortgage lenders to transact with the mortgage borrowers in a speedy and efficient way.
By having the assistance of mortgage brokers, the mortgage lenders can deal with competition effectively. A mortgage broker can help a customer get a fair idea about the mortgage market. People who have a poor credit rating often find it hard to obtain a mortgage loan. A mortgage broker can help by finding the right credit mortgage lender as they have tremendous exposure to the mortgage market.
Importance of the Mortgage Brokers
In every developed country of the world, the function of a mortgage broker has become indispensable. On behalf of the mortgage lenders, the mortgage brokers perform a number of tasks and in this way, it is easy for the mortgage lenders to transact with the mortgage borrowers in a speedy and efficient way. By taking the assistance of the mortgage brokers, the mortgage lenders can deal with the competition effectively. A mortgage broker can help a customer get a fair idea about the mortgage market. People who have poor credit rating often find it hard to obtain a mortgage loan. A mortgage broker can also help in this regard and find out a bad credit mortgage lender for them, because they have a lot of exposure to the mortgage market.