How Sub-Primes Loans Are (were) Made

There is a link at the bottom of this article that I want to share with you. And because the old adage "A picture is worth a thousand words" is true . . . clink the link. You´ll see what I mean.

I could spend a lot of time trying to explain it all. But because I´m a Realtor® and not a mortgage lender, it´s just easier drawing a picture.

And this link is exactly that. A very interesting illustration of what happens behind the scenes.

In this handy-dandy cartoon rendition (that´s not even a very GOOD cartoon rendition -- unless you actually DO like stick figures), the message is quite clear: Sub Prime Loans are EVIL!

Currently, there are a lot of changes taking place in the industry. In my years of practice (since 1999), I can honestly state that the lenders I worked with were not loan sharks. And yes, they did offer quite a bit of the product line this "Subprime Primer" illustrates.

The difference is, my clients were very well versed (by yours truly) on: 1) Knowing what their PITI would be per month, 2) NOT borrowing more then they could afford, 3) NOT getting in over their head, and 4) NOT counting their (equity) chickens before they hatched.

For my clients, some of these types of loans were a blessing. With 80% borrowed on the first, a 15% second mortgage and a 5% down payment, made absolute sense to them. They had great credit scores, good job histories, and they are now refinancing taking advantage of 5% interest rates!

Because I am a true fiduciary, and didn´t allow my clients to go in over their heads, I sleep very well at night, and my clients aren´t out to hang me up to dry OR the mortgage lenders we worked with!

Years ago, when people STILL didn´t have 10% or 20% down payments, sellers were offering "carry-backs" . . . also known as seconds . . . AKA seller-financing. For Realtor(s) who have been practicing longer then 10 years, they´ll tell you all about this. It´s the same principal the mortgage lenders were doing . . . offering a second.

There will always be people wanting to buy a home. And, there will always be "creative financing" options available . . . either through banking/lending institutions, or we´ll just revert back to the olden days of "seller carry-backs." But, seller´s helped create this market too! They wanted to CASH-OUT, and didn´t want to play banker waiting for monthly installment payments on their carry-backs.

The thing to remember is: DON´T USE YOUR HOME AS A PERSONAL PIGGY BANK!

Don´t buy above your means thinking the market will wave its magic wand and turn you into Donald Trump. Remember, he went belly-up a few times in his illustrious career too!

CLICK: HOW SUBPRIMES LOANS ARE MADE

And . . . don´t forget to visit me online for BUYER TIPS:

EBA Portland