Refinance Loan Poor Credit by ytk22785

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									     What is Subprime
        Lending?
High-interest-rate loan for
people with poor credit.

“Subprime”   borrowers.
      What are the risks?
By  definition, these borrowers
are higher risk because they have
yet to establish “good” credit.

There  is a high risk for both
lender and borrower.
       What is a housing
           bubble?
            inflated prices that
Artificially
eventually drastically drop.

The  housing bubble burst, making
it very difficult to refinance.
      Has this happened
           before?
In the 1980s, the Savings &
Loan market experienced similar
problems.

It is believed to be the cause of
a recession in the early 1990s.
      Government’s Role
“It’s not the government’s job to bail
out speculators or those who made the
decision to buy a home they knew
they could never afford.” – President
George W. Bush

He   discussed a plan to bail out
citizens, especially those with good
credit.
        Who is affected?
It’sa misconception that just
the poor are directly affected by
the subprime market.

There  are those who believe
some lenders are inherently
racist.
The Housing Market…
Statistics
  •Single homes, new homes,
  locations.
Speculations
  •Background.
Foreclosures
  •Marion Gardner’s story.
                    Statistics…
   Single Homes:
    – When compared to last year, sales of existing single
      family homes fell 8.4 percent, to about 6.5 million.
   New Homes:
    – The median price of a new home in April dropped
      0.9 percent from a year ago to $236,100.
    – The median price of an existing home in May
      dropped 2.1 percent from a year ago to $223,700.
   Locations:
    – The West-sales were down 16 percent from last
      year
    – The South- sales were down 7 percent from last
      year
    – Midwest and Northeast- sales were down nearly 6
      percent from last year.
               Speculation…
   Definition:
    – The practice of buying and selling land or
      other property in order to profit by the rise
      or fall in their market value.

   Background:
    – builders are putting in their contract a
      penalty of $50,000 if the home is sold
      within one year.
    – If the home owner wants to sell within 18
      months after buying, the builder has the
      option of buying back the property at the
      original price.
             Foreclosures…
 Definition:
  – Procedure whereby property pledged as
    security for a debt is sold to pay the
    debt in the event of default in payments
    or terms.
 Cleveland,    Ohio.
  – One in ten homes in the city is now
    vacant.
 Marion’s   Story…
 Foreclosures & Speculation…
 Rentals:
  – San Francisco- the monthly cost of
    renting an apartment is 45% of the
    monthly cost of buying a home
  – In Washington, D.C.- rental costs are
    now just 59% of the cost of owning
  – In Miami- rental costs are 63% of the
    cost of homeownership,
   Job Loss
   Less consumer
    spending
   Weaker stock
    market/wall street
 GMAC
 Citigroup Inc.

 Merrill Lynch

Other Companies:
  - Home Depot
  - Lowes
   Increased
    borrowing
   Higher cost of
    goods
   Less purchasing
    power
   Less Demand for $
   Effects were seen
    in:
    - Japan
    - China
    - Britain
    - Italy
    - Spain
    - Germany
    - Canada

								
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