In spite of the negative publicity, there is a lot being done to try and help subprime borrowers including the White House proposal to freeze interest rates and the availability of the FHASecure Loan program. These products can help consumers who currently are in subprime loans, have less than perfect credit records or who otherwise fail to qualify for prime, conventional loans. Subprime loans, for existing homeowners in financial distress, can also be used as an alternative to bankruptcy or foreclosure.
Consumers who have encountered financial hardship in the past such as bankruptcy, liens, or excessive debt can still get approved for a mortgage. However, until their credit improves, they will have to accept a subprime loan and should expect to pay a higher interest rate, as well as provide a larger down payment.
Consumers can work to improve their credit profile and eventually achieve prime status by taking the following steps suggested by the Pennsylvania Association of Mortgage Brokers (PAMB):
- Pay off or significantly reduce high interest credit card debt
- Pay your mortgage and other bills on time
- Establish a savings account
- Work with a mortgage broker such as a PAMB member or other originator who has experience in the subprime market and can guide you accordingly
- Work with your mortgage broker or loan originator to contact the three major credit bureaus to clear up any inaccuracies on your credit report
- Create consistency in your employment history by maintaining a job at the same company for at least one year
Mortgage brokers are one of the most common channels to use when obtaining a home loan in Pennsylvania and around the country. Nationwide, mortgage brokers originate more than 60 % of all residential loans. The mortgage broker compiles the borrower’s loan information, and then shops among various mortgage lenders to help the borrower find viable lending options that fit their financial goals and circumstances. Mortgage brokers originate loans offered by multiple wholesale lenders and do not fund the loan.
PAMB has been and continues to be proactive in our attempts to promote homeownership. Non-prime lending brings democracy to the credit markets. The terms subprime and non-prime can be used interchangeably to describe consumers with less than perfect credit. Today, people of every economic class, race, gender and ethnic group can obtain a mortgage at competitive terms from multiple lending sources. Non-prime loans provide an array of benefits to borrowers who only a few years ago were locked out of the mainstream credit markets. Expanding consumer awareness and consumer power, rather than restricting consumer choice, should be the goal of any new legislation or regulation affecting the mortgage process.
“Unfortunately, subprime loans are sometimes unfairly misrepresented as predatory loans,” states PAMB President Frank Bowersox. “This paints an inaccurate picture of these valuable products and might deter some individuals from pursuing homeownership.”
Whether you are classified as a prime or subprime borrower, the PAMB offers the following tips to avoid abusive lending practices:
- Shop around and compare
- Negotiate
- Be cautious
- Never act impulsively
- Understand the terms of your loan
- Don’t be afraid to ask questions
- Read carefully before you sign
- Borrow only the amount you need and can afford to repay
- Work with an PAMB member who subscribes to strict ethical standards
- Get help immediately if you feel you have been victimized
The Pennsylvania Association of Mortgage Brokers is composed of licensed mortgage professionals who strive to attain the highest degree of excellence and customer service available. PAMB members also subscribe to a code of ethics. For more information, visit www.pamb.org or call the Association office at (888) 311-PAMB.
