How To Get Home

In most cases, subprime loans are for borrowers with impaired or limited credit histories. This has been one of the fastest-growing parts of the mortgage industry. Over the last few years, subprime lenders have helped open the door to home ownership for many borrowers who might not have otherwise qualified for a home loan. These loans usually carry a higher rate of interest to compensate the lender for the increased risk.

The New York Times had a interesting article Tremors at the Door about the current state of the subprime industry. With many lenders closing their doors, the industry is tightening credit standards to help stop the rise in foreclosures and delinquencies. I don’t think you can make a blanket statement and say that subprime loans are bad. The wrong loan for the wrong borrower is never a good thing. Lenders have an obligation to explain the details of any loan program as well as what the worse case scenario would be. The problem is that many subprime loans are done as Adjustable Rate Mortgages  which can create an uncomfortable situation if the details were not disclosed. Most borrowers on a subprime loan should be working toward improving their credit so that at some point in the future, they can refinance to a traditional mortgage.