Subprime mortgages in Arizona have been considered a
predatory lending practice by many law makers. The facts show otherwise as Arizona home loans with bad credit programs have typically been used by investors
as a money making strategy, not by people who have been taken advantage of by
banks.)
A
subprime mortgage is a lending practice that can benefit borrowers with low
credit scores. Typically, subprime mortgages are given to borrowers with a less
than stellar credit history or to borrowers with other financial factors that
make them too much a liability for a traditional loan. Based on these factors,
the borrowers would not qualify for a traditional mortgage so banks give them a
subprime loan with a higher than average interest rate. Because subprime
borrowers represent a higher risk for the lender, most lenders charge a higher
than prime interest rate.
The
most common type of subprime mortgages that are offered are adjustable rate
mortgages or ARMs. An adjustable rate mortgage initially offers a very low
interest rate, usually below the prime rate offered by a traditional loan. For
an informed investor who intends to fix and flip or only own a home for a short
period of time, an adjustable rate mortgage can be a great investment tool.
However, an ARM is somewhat misleading to uninformed borrowers as it initially
charges a lower interest rate. After the ARM period the rate adjusts to a
significantly higher rate and higher monthly payment. These types of mortgages
were given out frequently by banks to un-creditworthy buyers in 2005 and 2006.
Once the loan reset to the higher interest rate, many borrowers were unable to
afford their new monthly payments and defaulted on their home loans. ARM were
largely responsible for the increase of subprime mortgage foreclosure increases
in the mid-2000s.
In
addition to ARMs, many private equity firms and hedge funds also give subprime
loans. Interest rates are usually higher for these loans because the borrowers
represent a higher credit risk to the lender. Although there have been some
predatory lenders, the majority of these firms want to help create a win-win
situation. Investors make money and borrowers are able to purchase homes.
In response to the foreclosure crisis, may law makers want to eliminate Arizona home loans with bad credit programs
entirely. They cite these types of loans as being predatory lending practices
as the interest rates can reach as high as 9% when a traditional loan hovers
around 4%. They also claim that these loans are disproportionately given to
people who make less than the median level of income and there is also fear
that subprime mortgages could hurt minorities or young people.
The Truth About
Subprime Home Loan Arizona
As stated above, there is concern among law makers that Arizona home loans with bad credit are
designed by banks to gain the most money from groups who have the least. The
foreclosures of the mid-2000s helped fuel this fire. Politicians and loan
reform groups make a variety of claims about the unsavory nature of subprime
lending in Arizona, however, many of these claims have been proven inaccurate
when the numbers are examined.
The
first claim by politicians looking to discredit subprime lending in Arizona is
that it would unfairly discriminate against low income borrowers. This claim is
categorically false. In fact, most subprime borrowers in Arizona are above the
median income line. Most subprime mortgages tend to be second mortgages that
are purchased as investment properties. Subprime borrowers also tend to own
fewer low value homes than traditional mortgage holders.
A
second claim against sub prime mortgages Arizona is that subprime loans are unfairly given out to borrowers who are
young without a substantial credit history. Subprime mortgages are not given
out to mostly young borrowers. In fact, the average age of a borrower for a
subprime mortgage was between 35 and 55 years of age. This indicates that
subprime mortgages are not being used to penalize borrowers with insufficient
credit history due to age.
Finally,
another criticism is that minority borrower will be discriminated against and
only offered high interest loans. A demographic study indicates that this is
untrue. By analyzing zip codes and demographics, it was concluded that subprime
mortgages are not more common in zip codes with a Hispanic population
concentration.
Subprime mortgages are not being used by banks to unfairly discriminate against borrowers, rather than are a valuable tool for borrowers with low credit scores or as a means to purchase an investment property.
Since subprime mortgages often charge higher interest rates,
they have unfortunately been lumped into the same category as title or payday
loans. Some politicians see them as predatory practices without having all the
facts. Arizona home loans with bad credit programs and loans are not a predatory lending practice by banks.
Rather they are a tool that can be used for borrowers that would otherwise not
qualify for a mortgage. Whether you are purchasing a second home as investment,
or buying a home for your family to live in, don’t let a low credit score
determine your fate. Contact a local mortgage broker to determine your options
and see if a subprime loan is a good option for you.
Level 4 Funding LLC
Arizona Home Loans
Tel: (623) 582-4444 | Fax: (888) 279-6917
www.Level4Funding.com
Arizona Home Loans
Tel: (623) 582-4444 | Fax: (888) 279-6917
www.Level4Funding.com
NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027
23335 N 18th Drive Suite 120
Phoenix AZ 85027
