SPECIAL REPORT:

From the Zemon Team at Greenwood Lending 

As seen on WVIR Channel 29 News

Sub-Prime Loans in the News… How Will the Sub-Prime Market Affect YOU?   by Andy Zemon, CMPS

WVIR Channel 29 news, a local NBC affiliate, recently asked me to speak on-camera on the issues of Sub-Prime loans and how this market affects clients.  This document should help you further understand what exactly is happening in the world of  sub-prime mortgage lending and how it could affect you. 

For more information on the story as seen on March 23, 2007 on WVIR channel 29 news, please visit http://www.nbc29.com/Global/story.asp?s=6272469.  And thank you to Annie Scholz, who ran the story and conducted all the research, for taking such a fair and objective approach to this issue.

The headlines are once again full of news from the mortgage and real estate front...and this time, the "Sub-Prime meltdown" is taking center stage.  What exactly is going on, and what does it mean to you?

A "Sub-Prime" home loan is a loan where the client has some significant credit issues, or was otherwise unable to qualify for a standard, conventional loan.  Due to the fact that these loans tend to be quite risky for the lender...they also bear higher interest rates as well as often being adjustable rates (that likely have recently hiked sky high), not to mention the steep prepayment penalties they generally carry.

These loans have been around for years—so why all the drama now? 

Many Sub-Prime and other adjustable home loan rates have moved dramatically higher, due in part to the Federal Reserve Board’s recent rate hike cycle.  So as these rates are adjusting higher—and the payment right along with it—homeowners are finding that they are unable to keep up with the dramatic increase in payment. 

In the past, homeowners in this situation would simply throw the house on the market, realize enough of a profit to cover any prepayment penalties, and literally move on.  But the softer real estate market isn't making this quite so easy any more—houses are not selling as quickly, and the home appreciation rates enjoyed in the past have moderated. 

So the Sub-Prime homeowner is stuck—and many of these homes are falling into foreclosure, causing even more problems.  As more and more loans are defaulting, mortgage lenders are forced to tighten up their lending standards across the board in response...making it tougher for a troubled homeowner to even refinance to get out of trouble. 

Many Sub-Prime lenders are feeling the pain, and in some cases, actually being forced to close their doors as they are hit with all the defaulted loans and foreclosed  properties coming back home to roost.

In the short term, home loan rates are benefiting, as the stock market is taking a beating. This causes money to flow into Bonds and Mortgage Backed Securities, which benefits home loan rates.  But the longer term picture may spell higher interest rates ahead, as lenders have to absorb the cost of the loans that went belly-up, combined with the cost of increased compliance and accountability standards.

Now in many cases, the advice and loan strategy given to the client was perfectly appropriate for the client at the time they took out the loan…but the “perfect storm” of colliding economic events may have just worked against them.  Unfortunately, many homeowners are paying a very steep price for what may have been poor advice and counsel given them at the time of their home purchase or refinance. 

Now more than ever before, it is clear that it pays to work with a true professional, especially when your home is on the line.  If you've ever thought it's too expensive to work with a real professional...just wait until you work with an amateur.  The price paid is clear—and in this case, it's a very painful one.

Because of these events, credit and lending standards are tightening across the board—so it's also a very wise idea to make sure your own credit score is as high as possible.  

Just as you would or at least should fully expect to receive annual reviews with your CPA and Financial Planner, it’s my belief that you should also expect that level of commitment from you Mortgage Planner.  Part of that annual review HAS to be a review of your credit standing.  With identity theft on the rise and more and more everyday expenses tied to your credit rating, it’s vital that you at least know where you stand and get the advice needed to correct anything that may be limiting your scores. 

One of the programs that I have recently invested in is called the Credit Paradigm, which allows me to analyze your credit and give you a detailed report of the actions that can be taken to increase your credit score—all at no extra charge to you.  You simply pay for the credit report or bring me your free report from www.annualcreditreport.com. 

I've already made the investment in this service on your behalf, because I want to ensure that my clients and their friends and family receive a level of service unlike what most would expect.  We build relationships for the long run, not just to provide a "transaction"—so although you may not have a need for my home loan services at this time, I'd like you to take advantage of the investment I made and allow me to provide you with your own personalized instructions for improving your credit score—even if it's already great!

To take advantage of this free program, just call or email!

By the way, I would be glad to extend the Credit Paradigm offer to anyone in your own network as well.  Please feel free to refer your friends, family members or coworkers to take advantage of this valuable program.  

Looking out for your best interest, your Trusted Advisor,

Andy Zemon

CMPS