Sub Prime Loan Modification
Sub-prime lending is a type of credit given to homeowners who do not meet the criteria for regular (prime") loans. A typical sub-prime borrower has a
poor or limited credit history and a FICO score of less than 620. These factors make them a risky investment for regular lenders, which keeps them
from taking out loans. To compensate for the risk, sub-prime lenders impose higher costs on their contracts. For credit cards, this is usually a higher
fee for over-the-limit spending or late fees. Sub-prime mortgages usually have higher interest rates and stricter terms.
Contrary to popular belief, sub-prime lending is a perfectly legal business. But like many new industries, it has been tainted by lenders who don't play
by industry standards. From 2003 to 2007, shady companies have turned up offering terms ranging from unfair to downright illegal. This, along with the
economic slowdown, has contributed a great deal to the real estate crisis that forced many homeowners into foreclosure.
Are all sub-prime loans bad?
No. There are actually some sub-prime companies who give you good value for your money. If you find a good lender and stay current, sub-prime
lending can have its benefits.For example, many people use sub-prime loans as a means of credit repair. Basically, it gives you a chance to rebuild
your credit history and improve your scores. By keeping up a good record on sub-prime loans, you can eventually refinance to better terms and get
back on your feet.
How do I know when a loan is sub-prime?
The first thing you should look at is the cost of the loan. Sub-prime loans have a higher overall cost (including interest, origination and closing fees)
compared to prime loans. Although the basic formula is the same for both types, the pricing for sub-prime loans is more noticeably risk-based. A low
credit score, small down payment, and other negative factors can greatly increase the cost of a sub-prime loan.Another common feature is the
prepayment penalty. Prepayment is when you pay more than the minimum monthly amount, or pay off the loan ahead of schedule. The penalty is to
make up for lost interest on the lender's part. Because you're getting off early, the lender stops earning regular interestand naturally, they charge you
for it.
Many sub-prime mortgages follow the 2/28 structure. This means that you pay a fixed interest rate for the first two years, after which the loan switches
to an adjustable rate where your payments are determined by market indicators. Often, the introductory rate is higher than the current index and the
margin is applied once the loan shifts. For example, a lender can give you an intro rate of 8% while the index is currently at 4%, with a margin set at
6%. Assuming the index stays the same, your rate can jump to 10% when your two years is over.
What can I do if I'm in a sub-prime loan?
Fortunately, there are laws in place to protect borrowers in any loan, prime or sub-prime. For instance, the Real Estate Settlement Procedures Act
(RESPA) requires all lenders to give you a good faith estimate of the total cost of the loan before closing any deals. This prevents any third party, such
as mortgage brokers, from making any kickbacks at your expense.
All mortgages are also covered by the Truth in Lending Act (TILA). This law gives you the right to know the full lending terms and loan costs in any
credit transaction, including credit cards. The TILA allows you to opt out of a transaction within a reasonable time if you don't agree with some of the
terms.
If a sub-prime mortgage has put you in financial difficulty, another thing you can do is apply for a loan modification.
Loan Modification or in this case SubPrime Loan Modification refers to an agreement between you and your lender to change the terms of your loan
on account of your financial situation. This way you can modify your loan terms to a more affordable level. The SubPrime Mortgage Loan Modification
is a legthy and time consuming process. However a competent loan modification attorney can expertly handle your case and expedite the loan
modification process. A loan modification attorney will expertly present your case and use the above mentioned lending laws as leverage to get you
more reasonable rates. If you're already in foreclosure, this will also stop the process while you work out better terms with your lender.
About the Author
The Loan Modification Department is composed of a team of attorneys, mortgage and real estate professionals, and hardship analysts. Lead by
Expert Loan Modification Attorney, Marc R. Tow, Loan Modification Department has helped thousands of American Home Owners save their Homes
and decrease their loan payments. For more information just Call 800-738-1170 or Visit our website www.cdloanmod.com/
Source: http://mowspace.co.za