Lenders Tighten Their Belts And Sub-prime Borrowers Feel the Squeeze

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As many as 31 sub-prime lenders have ceased lending operations since December 2006. Many of the remaining sub-prime lenders are taking defensive measures to make sure they're not next. As a result, new homeowners have limited options available to them to get our of their adjustable rate mortgages.

In order to stop, or at least slow down the rate of future loans defaulting, many sub-prime lenders have changed their lending guidelines. By raising credit score requirements and being tougher on appraised values, they intend to prevent the riskier loans from getting through their underwriting process.

Sub-prime lenders specialize in lending to borrowers with less than perfect credit. A majority of the home loans currently in default were financed by sub-prime lenders. When a loan goes into default, these lenders are forced to buy them back from the investors to whom they were sold. If too many loans go into default, then the investors will stop buying their loans.

It is estimated that there are as much as $2 trillion of U.S. mortgage debt, or about a quarter of all mortgage loans outstanding, are coming up for interest-rate resets in 2007 (Moody's Economy.com), many of which are new homeowners.

Brian Diez (briandiez.blogspot.com), a senior mortgage consultant and co-owner of Score More Credit Repair Services (http://www.GuaranteedCreditBoost.com) says the problem many of his customers face is that many of them had purchased their homes with 100% financing and adjustable rate mortgages expecting their homes to continuosly appreciate. Their intentions were to eventually refinance using their new found equity once they had proven themselves with timely payments. New lending guidelines are now preventing them from qualifying for a new fixed interest rate loan.

Mr. Diez offers his customers the option of repairing their credit before trying to get a mortgage.

By increasing a borrower's credit score, Mr. Diez states, they may now qualify for the loan amount they need and at a much better interest rate. As little as a 50 point increase in a borrowers credit score can save them as much as $89,190.00 in interest payments over the course of a 30 year mortgage (based on averages posted on myfico.com).

More importantly, borrowers can keep their homes, lower their payments, and rest easier at night knowing their homes and families are out of a potentially disastrous financial situation.


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