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Subprime Mortgages in San Diego
Are you considering a subprime mortgage loan for a San Diego home? If so, you’ll want to read our overview of subprime loans.
Subprime mortgage loans have been a fast-growing part of the mortgage industry in recent years. But lately, subprime lenders all across the country (and including San Diego) have come under fire for their tactics — specifically, some of these lenders are being criticized for how their tactics relate to rising home foreclosures.
But what is a subprime loan? How do they relate to the current rise in San Diego home foreclosures? And how can you protect yourself if you need to pursue a subprime mortgage loan?
What is a Subprime Mortgage Loan?
A subprime loan is a mortgage loan made to a borrower who would not normally qualify for a mortgage (perhaps because of poor credit or other financial issues). Subprime mortgage lenders usually charge borrowers a higher interest rate for potential losses the lender might incur should the borrower default on the mortgage loan).
Current Criticism of Subprime Mortgages
From 2000 to 2006, the number of San Diego home foreclosures continued to rise, just as it did across the nation. Recent data analysis suggests a link between the subprime lending market and this increase in foreclosures. As you might imagine, it wasn’t long before the federal government stepped in to review lending practices.
In response to this increased scrutiny, banking regulators have made their mortgage lending standards more rigid. According to Randall Kroszner, current Federal Reserve Board Governor: “This guidance … underscores that the Federal Reserve and other banking regulators expect lenders to make sure subprime borrowers not only can afford their monthly payments while the introductory rate is in effect but also after the interest rate resets.”
When Mr. Kroszner mentions “interest rate resets,” he is referring to adjustable rate mortgages, or ARM loans. With an ARM, the interest rate resets (or adjusts) after an initial period of lower interest. The adjustable rate mortgage is another piece of the puzzle connecting subprime lending and foreclosures.
Be Smart About Subprime Mortgages
It’s impossible to say across the board that subprime mortgages are good or bad. They can be either good or bad, depending on the circumstances. But one thing is for certain. There is certainly a link between subprime lending, adjustable rate mortgages, and the number of home foreclosures in San Diego and elsewhere in this country. So if you find yourself in a subprime borrowing situation, you should understand how these things are related, seek input from an unbiased financial advisor, and plan accordingly.
Related Article: How to Avoid Foreclosure (HUD)