Even in the late 1990s, subprime lending was becoming more and more of a problem. The 2001 Expanded Guidance was an expansion of earlier statements about this issue. The agencies' focus was the responsible use of subprime lending to assist subprime consumers to win back their credit ratings. Regaining lost credit would enable these people to enhance their financial situations. At the same time, the agencies stressed that lenders who assume a greater risk by lending to subprime individuals must also show evidence of ability to maintain their duty of upholding the public's trust in financial matters. It is the lender's responsibility to assess most carefully whether or not the borrower is likely to be able to repay the debt incurred. Painstaking effort is required to create strict rules of underwriting to assist in such assessment. Only when controls like this exist will both borrower and lender enjoy minimized risk of loss.

This Expanded Guidance clearly defined for the first time the criteria used to decide whether a potential borrower will be classified as "prime" or "subprime." It states that at least one of these issues will characterize a borrower as subprime when the person applies for a loan:

· Low credit score

· Bad credit history, including

· collection accounts

· repossessions

· late payments of invoices

· bankruptcy

· debts that have been written off as uncollectable, called "charge-offs"

· high ratio of debt to income

· decreased ability to pay off the loan.

Further, the document describes these attributes of the subprime borrower:

· has a Fair Isaac Corporation (FICO) credit score of less than 660;

· has collection activity, liens, charge-offs, or judgments within the past two years;

· within the past year, has had two late payments;

· within the past two years, has made a payment that was more than 60 days late;

· has a ratio of debt to income of at least 50%;

· has declared bankruptcy in the past five years;

· has been assigned a score by another credit rating service that would equate to a FICO score of 660.

All lenders use these standards to identify subprime borrowers. Bear in mind that even if you have a FICO score that is better than 660, you will still be considered a subprime borrower if you possess a single one of the attributes listed above.

Expanded Guidance offers a clear definition of lending practices to be considered "predatory." The agencies in no way insinuate that predatory lending practices characterize all subprime lenders. In fact, it is their belief that benefits for both the borrower and the lender come from using subprime loans that are administered properly. Nonetheless, the public should be made aware that predatory lending practices do exist, and that borrowing at subprime may leave them vulnerable to such practices. In predatory lending, the exchange between borrower and lender is very unequal: the lender gets the borrower's money and the borrower gets not much of anything!

Most predatory lending practices fall into three categories.

· Many car loans and housing mortgages are made based on assets pledged by the borrower as collateral, rather than on the borrower's actual ability to fulfill the debt.

· "Loan flipping" occurs when a lender coerces or talks a borrower into refinancing a mortgage, at no advantage to the homeowner, but at great advantage to the lender, who may collect sizeable fees for the transaction.

· Failing to reveal to the borrower all the hidden fees and costs of a loan, and concealing information or providing fraudulent information to the borrower.

· Very often, these practices are perpetrated on vulnerable borrowers, like the elderly, minority homeowners, or low-income families. In many cases, these people would actually have qualified for a mortgage at prime rates; but they are at a disadvantage because of their lack of knowledge.

If you are thinking of borrowing at subprime for a mortgage, you should familiarize yourself with the 2001 Expanded Guidance for Subprime Lending. It is available on the Internet, and is definitely worthwhile reading. It laid a fine foundation for further definition of the responsibilities of subprime lenders and the needs and rights of subprime borrowers.

For the past couple of years, it seems that every time you open a newspaper or turn on the television, you come up against the subject of subprime lending. Everyone seems to have something negative to say about it. You’d think it was the root of all evil!

It’s true that subprime lending has many things about it that are not especially positive. For example, for whom was subprime lending designed? For the subprime, not-quite-good-enough borrower, of course. Often, the person who finds it necessary to borrow at subprime is the person whose credit rating is a bit tarnished, and therefore someone who is considered more likely to default on the loan. Subprime lenders generally specialize in this area. They tend to charge more, both in fees and in interest rates, to make up for the increase in risk of default.

How did we allow this to happen? It has a lot to do with greed. Borrowers were greedy, and wanted a way to buy houses they really could not afford. Subprime lenders and mortgage brokers were greedy, and offered mortgages to people they knew shouldn’t be borrowing money at all. Add easy-to-access money and low interest rates into the mix, and it’s a disaster waiting to happen.

Once upon a time, not so long ago, you could borrow on the equity in your home – an amount equivalent to 125% of its value. While interest rates were low, many people began refinancing their homes, or taking out lines of credit and loans on their home equity. At the same time, American real estate markets were growing faster than ever before. These individuals figured it would be easy to sell their homes, or refinance again, if they wanted to. Such extravagant growth led to a sudden, but inevitable, decline in the housing market.

At this point, these people are in a real bind. They are unable to sell their houses: the value is nowhere near the amount of the mortgages they hold. They are in a position of negative equity: that is, the mortgage is more than the value of the house, and their savings are insufficient to fill the gap. They may have an adjustable rate mortgage (ARM) that escalates regularly. That’s a whole lot of trouble for a whole lot of people! Foreclosures on homes are at a record high. These foreclosures will make the situation even worse, as houses are sold at auction for a fraction of their full market value.

There are several other kinds of subprime loans out there that may look tempting to a borrower who has no money for a deposit. An 80/20 mortgage is one of these. This one is the epitome of greed; no borrower with an ounce of financial responsibility should even consider these loans. Eighty per cent of the asking price is borrowed through a conventional fixed-rate mortgage or an adjustable rate mortgage. Then you borrow the remaining 20% of the price as a loan on your home equity. The rate of the latter mortgage will be higher. The lender can decide to readjust some of these mortgages on a whim. Negative amortization mortgages and interest-only mortgages are also motivated by greed. Both types benefit only the lender, not the borrower; as time goes by, the loan just gets bigger. Although monthly payments are not too large during the five-year or ten-year term of the loan, none of the principal has been repaid, and there is an enormous “balloon payment” awaiting the borrower when the term ends.

These are a few of the things that are wrong with subprime lending. Keep an eye out for mortgage plans that actually are of greatest benefit to the lender!

Adverse Credit Mortgages - Home Loans For People With Poor Credit

Mortgage lenders offer many financing options for people with adverse credit. For those who don’t qualify for an A loan, you can use a B, C, or D loan to finance the purchase of your home.

These home loans offer short-term financing until your credit score improves and you can qualify for an A loan with lower interest rates.

Adverse Credit

Adverse credit is when you have a bankruptcy, foreclosure, or several late payments in your credit history. You can mitigate these marks on your credit report by including a letter explaining the circumstances. A health emergency or temporary job loss may help lenders over look your credit blemishes.

Large down payments can also help reduce your credit risk for lenders, qualifying you for an A loan. The property’s location is also a factor. However, even with poor credit, you can buy your home with a B, C, or D loan.

B, C, and D Loans

B, C, and D loans are based on your credit risk, which includes your credit score, income level, and down payment. So a B loan will have higher rates than an A loan, but lower rates than a C or D loan. While you can’t change your credit number overnight, you can improve your lending factors and qualify for better rates by increasing your down payment and reducing your mortgage amount.

Short Term Solutions

Subprime financing, which includes B, C, and D loans, offers a short term solution until you improve your credit score. An adjustable rate mortgage (ARM) offers lower rates than a fix rate mortgage and makes sense if you plan to refinance for better rates and terms in the future. An ARM will have low rates for 1 to 7 years and then adjust after that period based on your loan terms.

If you find a good rate even with a subprime lender and you plan to spend several years in your home, you may decide a fixed-rate mortgage will save you money in the long run. Before you decide on either type of mortgage, be sure you compare the risk levels and interest costs over the long term.

See my recommended Low Credit Score Home Mortgage Loan companies online. Carrie Reeder is the owner of ABC Loan Guide, which offers help with low credit home loans.

Buying A Home After Bankruptcy - Beware Of Shady Subprime Mortgage Lenders

If you have a recent bankruptcy and are looking to buy a home, be careful of unethical or predatory lenders. Whether you are looking online or offline for a mortgage lender, it is becoming increasingly more common that subprime lenders are taking advantage of bad credit borrowers.

Many lenders will take advantage of borrowers with recent bankruptcies and bad credit because they know that the borrowers loan options are limited. Sometimes these lenders will charge excessively high fees, extensive pre-payment penalties on the home or ask for a fee upfront to "process" the loan.

Here are some tips on applying for a mortgage loan after a bankruptcy:

Beware of the Lender Asking For a Fee Upfront - Anytime you are applying for a mortgage loan, the only fee you should ever have to pay is the application fee which covers the cost of the lender pulling your credit application. Some lending scams involve asking for a processing fee of hundreds to thousands to process the loan.

Compare Loan Offers - If you can compare from 3-4 mortgage application quotes then you will know what to expect the current interest rate for subprime mortgage loans to be. If you accept the first mortgage loan offer you have, you may be paying a much higher interest rate than what is reasonable for your credit history.

Get Closing Costs in Writing - Brokers know that if a borrower has bad credit, they are most likely going to be more concerned about getting a reasonable interest rate and just getting approved than making sure they get normal closing costs. This is where many lenders will ding the borrower with credit problems. They will sometimes charge excessive closing cost fees. Get the list of closing costs in writing ahead of time and then do research online to make sure that the costs are reasonable. If the costs are not, go back to the lender and tell them that the closing costs are too high and you will not go through with the loan until they are lowered to be what is normal. The broker will usually comply, because they don't want the loan to fall through.

View our recommended Mortgage After Bankruptcy lenders. Carrie Reeder is the owner of ABC Loan Guide, an informational website about various types of loans.

Refinance Mortgage Lenders - Finding The Best Refinance Lender

Finding a good lender to refinance your mortgage can be almost as important a decision as the actual mortgage you choose. In order to make a wise selection of a refinancing lender you should do four things:

1. Know the objective of your mortgage refinance

Do you want to lower your current interest rate? Generally, refinancing your mortgage can be profitable if your current mortgage is 2% higher than the prevailing rates. Do you want to move from an adjustable rate mortgage (ARM) to a fixed rate mortgage?

If interest rates are creeping up this may be a good idea. Do you want to shorten the term of your mortgage to accumulate value more quickly? Do you want to take cash out of your home’s equity? The mortgage refinance lender you pick will want to know your reason for refinancing so that the appropriate mortgage product can be chosen. You will also want to be aware of your credit score and the terms of your current mortgage.

2. Know the different types of mortgage refinance lenders and the different types of mortgage refinance products that are available

Just like when your home’s mortgage was originally financed, there are a variety of lenders who can refinance your mortgage: Banks, credit unions, mortgage companies. There are also brokers who will find a variety of lenders for you. You should be aware, however, that unless specifically contracted to do so a mortgage broker does not have to find the mortgage refinance package that might be the best for you.

Refresh your knowledge of the mortgage financing vocabulary. Be fluent with terms such as interest rate, point and prepayment penalties. Also, most newspapers publish a daily listing of current interest rates for different types of mortgages. Become familiar with these listings and check them on a daily basis.

3. Shop around and find several different lenders to refinance your mortgage

The market for refinancing mortgages has become so crowded and competitive that it is fairly easy to find several lenders to compare. You might use a broker. The newspaper and the yellow pages are also good places to start. If you are comfortable negotiating the Internet, it is an excellent resource. There are many services online which will perform a preliminary search for a lender. Your current mortgage lender should also be included in this group.

4. Negotiate the mortgage refinance loan that suits your needs

Many times the compensation a lender makes on refinancing a mortgage is dependent on the terms of the mortgage so it is up to you to make sure that the loan received is the most advantageous for you.

You might want to investigate mortgage refinance lenders who offer no closing cost loans or free appraisals. It is important to make sure that you are comparing like products. In order to do this, have your lender present proposals in writing and require ample time to compare the different offers.

Prepare a list of the features of each loan. The type of loan, interest rate, points, prepayment penalties, closing costs are a few of the loan elements which should be compared. Check the rate you are being offered against the rates from the most current newspaper listings. The more organized, thorough and knowledgeable you are, the better your decision will be.

Deciding to refinance your mortgage is an important choice that should not be made lightly. Know why you are doing it. Know the possibilities for refinancing lenders and products that are available. Be willing to shop amongst the different lenders and to negotiate a beneficial deal. If you follow these steps, finding a good mortgage refinance lender will be much easier.

View our recommended mortgage Refi lenders. Carrie Reeder is the owner of ABC Loan Guide, an informational website about various types of loans.