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Lending sub-prime mortgage issues and how it affects you.

April 12, 2008
Global economic growth potentials for 2008 have already vanished because the global economy is widely related to demand in the US, a demand that is driven by the real estate and mortgage markets. Globalization and a broken American system of business are increasingly rigging the game against most Americans while letting the upper class elite reap wealth beyond the imagination of most people.

Loan Terms and Underwriting Standards When a provider offers nontraditional mortgage loan products, underwriting standards should address the effect of a substantial payment increase on the borrower's capacity to repay when loan amortization begins. Central to prudent lending is the internal discipline to maintain sound loan terms and underwriting standards despite competitive pressures.

Lenders that fail to escrow property taxes and hazard insurance and brokers that offer incentives to lure unqualified borrowers into unaffordable subprime loans are also strong forces contributing to the rise in subprime market foreclosures. Lenders charge a much higher interest rate on subprime loans because the risk that a homebuyer may not make their payments is higher. Because FHA insures the lender against this risk, the interest rates on FHA loans are generally among the lowest in the market. Lenders have incentives to omit required credit insurance premiums from the disclosures of the annual percentage rate and finance charge. First, the appearance of a lower rate may induce the borrower to follow through on the transaction.

Servicers should move quickly to assist those who can refinance. Servicers of loans aim to minimize losses, and they appear to be actively working with thousands of individual borrowers to modify their mortgages. To some extent, the dispersed ownership of mortgages may combine with legal and accounting rules to make successful workouts more difficult to achieve. Servicers are increasing their use of longer-term changes to the mortgage loan versus their earlier reliance on short-term repayment or forbearance agreements.

Borrowers who do not understand the terms of their loans can be easily exploited. Some of this can be addressed through more effective borrower education. Borrowers often do not do this. Too many people are enticed by, rather than are suspicious of, offers from brokers and lenders, which often sound too good to be true. Borrowers who are less than 60 days behind on their mortgage payments because of a payment increase may also be eligible for the program.

Homeowners are not the only ones harmed by mortgage-related scams. A growing number of scam artists are duping lenders, mortgage companies and other businesses in the mortgage industry. Homeowners who respond may qualify for a "pause" in the foreclosure process while a loan modification is considered. This initiative is targeted to reach not only subprime borrowers, but all 90-day delinquent homeowners nationwide with a step-by-step approach to find individual solutions to individual problems.