The subprime mortgage industry got its start back in 1993 and 90 percent off all subprime loans were initiated after that year. The biggest contributor to the increased activity in the subprime loan industry was when large corporations started to get into the action and started encouraging at-risk borrowers that this type of mortgage was perfectly suited for their needs.
Sub-prime mortgage loans are a variety of loans specifically developed for borrowers who cannot qualify for conventional loans because of lower credit scores and more volatile credit history. Because subprime mortgage holders are considered to be a high-risk group for default, lenders charge borrowers an interest rate that is higher than the prime rate.
Subprime Mortgages and the Real Estate Industry
Adjustable rate mortgages are one of the most common forms of subprime mortgages. The home loan varietal typically starts with a low interest rate, making the first years of home mortgage payments easy as pie. During the course of the contract loan, there are various interest rate reset points when the mortgage rate is adjusted to reflect the current market conditions. At that point, the mortgage payment may escalate by thousands of dollars, making it physically impossible for many borrowers to make their payments on time.
Nearly 80 percent of all subprime mortgages issued prior to the real estate bubble bursting were ARM. Once the rates increased, mortgage holders started to default in mass and that negatively impacted the financial industry as a whole. Many financial institutions were buying subprime mortgage "bundles" as investment opportunities. Once the real estate market started to tumble, so did the value of the investments. The value of individual portfolios, bank capital and U.S. government sponsored enterprises all declined as a result and helped weaken the worldwide economy.
Why are Subprime Mortgages Becoming Harder to Find
Fewer financial institutions have been offering subprime mortgages in direct response to the real estate crisis. Subprime mortgage defaults were the catalyst of the mortgage meltdown and as a result, many lenders have been removing this variety of loan opportunities from their portfolio of financial products.
To date, nearly 100 subprime mortgage lenders have failed, filed for bankruptcy or exited the subprime mortgage market. Wells Fargo is just the latest player withdrawing from the riskiest of home loan opportunities. Last year HSBC closed the last of their subprime finance offices. Previously Ameriquest Mortgage, (AKA New Century Financial Corp.) and Full Spectrum Lending, a division Countrywide Financial Corp., closed. Additionally many of the Wall Street firms with subprime arms have also disappeared from the landscape.
Although finding a subprime mortgage may be challenging, there are still opportunities out there. One of the best resources for finding that variety of home loans is conducting a search on the web.
