Sub Prime Loan Modification
19 October 2009
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13 Comments
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 interest–and 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 Loan Modification or in this case Sub Prime 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 Sub Prime Mortgage Loan Modification is a lengthy 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.
Watch the video related
Default: The Student Loan Documentary is a feature-length documentary chronicling the stories of borrowers from different backgrounds affected by the private student lending industry and their struggles to change the system. In 2005 private student loans were exempted of ALL consumer protections. No matter when their loans were taken, many borrowers now find themselves in a paralyzing predicament of repaying two, three or multiple times the original amount borrowed, with no bankruptcy …
Help answer the question
How do I get loans to obtain another bachelor's degree in a different field?
I was denied loans to obtain my bachelor's in nursing because I ALREADY have a bachelor's in business. I need my nursing degree for the field I now want to go into, but I have to get student loans to obtain it. I have never had a student loan so why is this so difficult? Will the new stimulus package help with the student loan process?
loans
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Don't need a mod. I bought a house that I can actually afford, got a 30 year FIXED loan,did not buy at the height of a VERY obvious housing bubble, plus I put down some actual cash. Responsible home buying = no need for modification.
There are two big details missing here to give a real accurate answer. First, was teh HELOC taken out as a combo loan to purchase the property? Second, what state are you in. These two facts are key to giving an accurate answer.
If the HELOC was used as a combo loan to purchase the property then it is treated as a mortgage with the rights assigned to that. They can initiate foreclosure, etc.
this is where the state comes in to play. If you are in a state that allows deficiency judgments then the lender (or lenders) can come after you for any balance due. If your state does not allow deficiency judgments then no one can come after you once for any extra amount of money due after foreclosure.
If the HELOC was taken out after you bought the house then it is simply a line of credit. Think of it as a secured credit card. The secured part is your home. This makes it a separate debt from the mortgage and collectible all the time
Thank you for making this video. I subscribed to your channel. The average loan at my school is $19,000 a year. I just wish they could keep the interest rates to never go above 6%. Anything more than that is usury.
See. The BRIGHT ones don’t need school. School needs non-goal reaching kids to prey on nowadays. Doing the math TRULY will SAVE you.
or, do they just want to collapse the system and bring about reform to shape an agenda? BTW I’m an independent voter.
I dropped out of college because I realized it wasn’t worth the money. The work was easy in my engineering classes, but the amount of time and money I would have spent on college would not have sense financially. I am a cnc machinist now and doing fine. I never considered taking out a student loan because I understood the math.
I'll get straight to the point.
You asked how often do these actually materialize into something decent?
well, that depends.
here is how a loan mod works:
let's say your mortgage is 1000 per month.
and let's also say you are 6 months behind.
that means you are behind $6000. with me so far?
okay, the way a loan mod works is this:
countrywide will take that $6000 that you owe and divide it up over the next 6-12 months and ADD it to the mortgage you already have. so let's look at the most favorable example:
if they split it up over the next 12 months (which is all based on approval), that means your loan mod payment is $500. make sense? $6000 divided by 12 months is $500. okay?
here's the kicker: that's on TOP of your existing mortgage, because you still owe that.
so what will happen is you will end up paying your regular payment of $1000, PLUS the $500 for the next 12 months.
make sense?
a couple of statistics that may interest you:
89% of people who sign up for a loan mod never make their first payment. yep, you read that right. the reason is fairly obvious. if it was difficult to make your original payment, increasing that payment only makes it more difficult, doesn't it?
the reason a lender is willing to do it is for that 11% of people. you see, foreclosure is expensive for banks. it costs them on average more than $30,000 per house after you account for attorney fees, holding costs, taxes, insurance, etc. they want to avoid it and squeeze every bit of money out of you before they do so.
hope this helps. if you have any questions, email me.
oh, by the way, you can check this out to see what other options you have:
squidoo.com/youstopforeclosurenow
of course you can try loan modification is only the solution for your query first of all you have to contact your mortgage lender who guide you or you can find many online sources where you can get your solution you can try this source : http://www.refinancing101.net/loan-modification.html is exact match your query. I think you will get solution from here
The government should help bail out our student loans and then we could spend that money on a house, car, the economy. But instead they rather bail out huge companies that got us into this mess, giving that money to CEOs and their huge bloated paychecks, so they can buy yet another yacht. Then they expect us to work for nickels and dimes to try to pay back our student loans. What a crooked country we live in, as students can’t even file for bankruptcy anymore, unlike these companies.
no quite that easy. Your name would be tarnished for a long time.
Dumb, predatory policies, like these student-loan lenders who use legalized usury to force students into serfdom–THIS is what is driving Americans out of the country for good these days. The brain drain to the Netherlands, China, Germany, Argentina, Panama, Chile- it’s off the charts. Not just student loans but health care (don’t have a baby in the USA, the crooks in the industry will bankrupt you). So the best Americans now do their business in Dutch, German, Spanish- cuz they’re overseas.
BTW, the most unbelievable part of all this– the USA is losing its most talented people to other countries, since its policies are tailored to enrich the already super-rich at the expense of the young, bright and ambitions working their way up, and the poor in general. AKA the definition of a banana republic.
The United States could quickly improve this miserable situation, just by passing the most basic reforms to correct these problems.
I hope it is a good job and you have a marketable degree. A degree is an investment not a right!
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