Mortgage Vs. Government

By: Martin Lukac

With recent news of subprime mortgages being defaulted government is stepping in to regulate all subprime lenders.

What government wants to do is to protect borrowers from high payment adjustments. Example of that would be when you got your adjustable rate loan and your payment was $1,000. Few months later your payment has jumped to $3,000 as your rate was adjusted. What congress wants to do is to regulate this even more and protect borrower.

But will congress be able to satisfy borrowers and lenders? From borrower point of view this is the greatest thing that can happen. But what about lenders? If congress enacts any regulations that may hurt lender's business, they will eventually change all their lending guidelines.

That would mean that to qualify for a mortgage with credit score of 640 or less will get more difficult. That means that most borrowers will not be able to buy homes at all, unless you put down a significant down.

But there is really nothing wrong with subprime market. If congress can leave lenders alone for next 6-8 months, this subprime worries will correct itself. After those 6-8 months if there is no move, congress can step in. This is an overreaction from many borrowers as well as government that something needs to be done.

Most borrowers that got adjustable rate mortgages received them when property values where moving up. Now market slowed and most borrowers cannot even refinance, as they own more on their mortgage than their property is worth.

Foreclosure in some cases is inevitable and most borrowers will loose their homes. But there are many investors who will eventually get foreclosed houses at discount prices. In 3-5 months these investors will put houses back on market and demand will rise again for homes.

Look at subprime lender stock, look into New Century, Ameriquest and you will find that in recent days these stocks actually moved up due to fact that they can sell their mortgage portfolio quickly.

There are heated debates about subprime mortgages and what should happen next. No matter what the result will be, it will boil down to guidelines. If lenders change them and you have bad credit, there is no way; you will be able to buy a home at all.

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