The other day, FOX news contacted me after reading one of my post wanting to interview some of my successful borrowers who once had a subprime mortgage. You wouldn’t know this from watching the news: a majority of subprime mortgages are performing well. It’s a minority that are not.
I was eager to help tell this story and sent an email out to a handful of my clients who once had subprime mortgages letting them know about this opportunity. No one responded. It made me wonder if they are embarrassed they once used "subprime financing"? With how it’s getting a big black eye, I guess I could understand how they feel. It’s too bad that more of the "good news" about this type of financing is not making the headlines.
The fact is, most of my clients who had subprime/alt-a mortgages are doing very well. They did what you’re suppose to do if you have a subprime mortgage:
- Work on improving what ever situation caused them not to have a "prime" mortgage (employment, credit, assets, etc.).
- Prepared themselves for when their fixed period and prepayment penalty is over so they can refinance into a "prime" mortgage. They had an "exit strategy".
Here are a few examples:
Single mom who’s self employed for one year but coming from the same line of work for five years with excellent credit. She had a track record of solid income however, conforming guidelines require two years of tax returns (for full doc) or two years of business licenses (stated/NIV). We provided a 30 year fixed mortgage using 6 months bank statements to document her income. She recently sold that home and is now in her next home which we were able to go "conforming" using the proceeds from her first home for the down payment.
Wife marries a "project" husband (her loving terms, not mine) where his past credit is a mess. Her credit is fine but he’s the primary wage earner. They were actually my first subprime loans. At that time, if you had a mid credit score of 600 or better, you could do zero down. They barely squeaked in. However, they did what subprime buyers are suppose to do: they worked on cleaning up their credit over the two year time of their mortgage had a fixed rate. They changed their spending habits and were responsible home owners. They since refinanced after their two year prepayment penalty was up. Having a mortgage has improved their credit score (as well as working on their credit) and they have benefited from the appreciation that the Pacific Northwest has offered them.
Young couple with three children living with the in-laws. Money was a little tight as far as the down payment was concerned. They had decent income and credit that was not quite established yet. They believed in not having credit cards. They were able to purchase their first home and move out of the folks house (a good move for everyone, I’m sure!) and later refinanced with higher credit scores and equity they gained by the time their purchase money mortgage was about to adjust.
Home buyers who used subprime mortgages to purchase their home, who had good advice from a qualified Mortgage Professional and who followed that advice, should not be ashamed to be associated with a subprime or alt-a mortgage loan. They did what you’re suppose to do, use it as band-aid financing.
Home owners who have a subprime mortgage and did not change their habits are probably going to be hurt in this market. If you currently have a subprime mortgage with an ARM or prepayment penalty adjusting within the next 18 months, please contact your Mortgage Professional as soon as possible so you can start working on your credit.
If you’re part of the first group, be proud! You improved your credit, manage your debts and spending patterns and became a responsible home owner.