“My name is XXX and I’m a roommate of XXXX. I emailed a lender asking his opinion on the sub prime lender collapse going on right now and if it will effect loans in about 3-6 months. He said:
There is no sub prime lender collapse, just major changes to how they do business. Lenders who did not change early enough are on their way out. There will always be subprime loans, but if you are not subprime then this has absolutely no effect on you.
100% financing is almost and will be completely unavailable soon (whatever someone’s credit score or income, they will need to put down at least 5-10% plus closing costs).
The housing prices are not going to get any better then they are right now. So now is the time to take advantage of great deals and seller paid closing costs.”
***ANSWER:
[Note: a subprime loan is one made to a borrower with credit issues. Theres no exact FICO score cutoff, but typically credit scores below 620 ARE subprime and above 660 are not subprime.]
You’re right about what’s happening right now to subprime lenders. If this isn’t a “collapse”, I don’t know what is.
Several are closing their doors, including one client of mine who I was selling foreclosures for. Others have stopped making loans entirely. New Century Mortgage announced this week that they’ve stopped making loans. To my knowledge, only two lenders making 100% subprime loans right now.
And I disagree that there’s “absolutely no effect” on you if you’re not subprime.
Lenders are tightening up some requirements for non subprime borrowers, especially on no/low-documentation loans. Others are holding at slightly higher rates to help make up for losses on subprime loans.
A positive impact is that you’ll have less competition buying a home as many subprime buyers will be shut out of the market.
On the flipside, if you’re selling, there will be less buyers for your home.
That lender is wrong in that 100% loans are NOT going away. They are disappearing for subprime borrowers, but not for borrowers with good credit.
I do agree with him that it’s a great time to buy, with low rates, soft prices, and most sellers willing to pay closing costs.
Hope that helps
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