The Sky is NOT FALLING Part II

I asked a skilled and thoughtful lender, Olan Carder, his opinion on the sub-prime mortgage mess and the effect on our buyers. Olan is a senior originator for Myers Park Mortgage, the #1 mortgage originator in Charlotte, NC. Here are his thoughts on it all.

“What the Sub-Prime Debacle Means For the Typical Borrower”

First lets get some things in perspective. You never hear anyone talk about how large the subprime market really is, and that is important to understand when considering its overall impact on the market. The truth is that subprime mortgages make up only a small percentage, approximately 14%, of the total mortgage market and only about 13% of those are late on payments, according to a recent article by Jerry Bowyer at Fox News. That leaves us wondering. If the problem is that small why are all these national lenders going out of business?

Let me try to explain this in simple terms. Mortgage lenders make money by funding new loans with someone else's money. They make the loans and then sell the loans to investors for a profit. When the foreclosure rates get too high for a certain kind of loan, none of the investors want to buy them anymore. If the mortgage lenders that specialize in those loans have already tied up all their money with new loans, and then no one will buy them, they don't have any money left to make any new loans. That's when they close their doors.

In the current market, investors have stopped buying subprime loans. They will still buy some of them, but at a very low price that basically costs the mortgage lenders all of their profit. When mortgage lenders can't make any profit on a loan program, you can bet that program is either going away completely or will become outrageously expensive. How does this translate to today's typical homebuyer? Not bad at all!

The typical homebuyer today will not be effected very much at all by these recent changes. Since 86% of mortgages don't fall into the subprime category and traditional mortgage products are priced very well right now, the typical homebuyer should be just fine. Most homebuyers easily qualify for conventional mortgages, but for many who fall below the credit requirements for traditional loans, Fannie Mae has many affordable community lending programs that are fantastic. Another recent change you can thank Uncle Sam for is PMI becoming tax deductible. If you make less then $100,000 per year and take a loan with Private Mortgage Insurance, you can now write-off that monthly PMI payment! (my italics tm)

The overall mortgage market is strong, and many of the lenders and programs that just collapsed were bad for consumers anyway. My advice to homebuyers with credit problems is to find a loan officer that cares enough to help you through repairing your credit and positioning yourself for a quality fixed rate mortgage that you can afford.
To get more information, a rate or payment, visit Olan's Site.

Thanks Olan!