Oops! Prime Rate Borrwers Stuck with Bad Credit Florida Mortgages
Imagine you’re a homeowner - and you discover that instead of the expensive subprime Florida mortgage loan you signed on for, you actually qualified for a prime mortgage with much lower interest rates.
Talk about major regret, right?
Sadly, many industry insiders are saying numerous individuals are paying higher Florida mortgage rates than they need to.
“I reviewed several hundred [subprime] loans recently for our wholesale division,” said Allen Hardester, regional director of development for mortgage broker, Guaranteed Rate, “and all of them, with one exception, qualified for a prime-rate loan.”
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Freddie Mac, a government-sponsored mortgage-loan buyer, estimated that borrowers of 15 to 35 percent of all subprime loans it bought in 2005 could have qualified for prime rate loans.
Fannie Mae, another government-sponsored loan buyer, estimated up to 50 percent of the borrowers, whose subprimes it bought that year, had credit profiles that could have qualified them for prime rates Florida mortgages.
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Doug Duncan, chief economist for the Mortgage Bankers Association, said a 1999 MBA survey revealed that 31 percent of all home buyers never spoke to anyone except their real estate agent when they bought a home.
“People take things too nonchalantly,” said Hardester. “If you’ve got plenty of money and don’t mind not getting the best rate, listen to your realtor.”Follow the dollars
Some consumer advocates blame loan officers and Florida mortgage brokers who steer borrowers away from prime loans because they can make much more money from the subprime market.
“Dollar for dollar, it is much more lucrative for a broker to sell subprime loans,” said Allen Fishbein, a director of credit and housing policy for the Consumer Federation of America.
“I have a friend who interviewed for a job with my company,” said Hardester. “He told me, ‘I’m not coming to work for you. I can’t make enough money.’”
The friend, who had been working in the subprime lending industry, told Hardester he was used to getting an average of five points-plus for each loan he originated; that’s more than $10,000 on a $200,000 mortgage. Hardester’s company writes mostly prime loans, where the margins are much thinner - around 1 percent or less.
The color of money
Consumer advocates and community activists say minorities have been especially targeted for subprime loans.
The Consumer Federation of America calculated that African-American borrowers were more than twice as likely as white families to have gotten subprime loans in 2005 - even after accounting for credit report differences and other risk factors. Latinos were also much more likely to receive subprime loans.
Janice Bowdler, housing policy analyst for Latino advocacy group the National Council of La Raza, said, “Even high-income Latino families get more subprime loans than do low-income white families.”
One reason, she said: Minority communities are underserved by institutions that deal mainly in prime loans, which effectively funnels residents into the offices of subprime Florida mortgage lenders.
The real estate sections of local newspapers add to the problem, according to Bowdler. She pointed to The Washington Post, with a mostly white readership, which features ads for prime loan originators. The ads often have a clear box of the latest rates from various lenders, and the text is laid out to help borrowers comparison shop and save money.
But the ads in the real estate section of Washington D.C.-area paper El Tiempo Latino are quite different. They’re primarily from mortgage brokers and they stress - not price - but how borrowers can get loans despite little credit history or documentation.
“Already, you’re put into channels that lead to subprime loans,” Bowdler said.
SOURCE: CNN Money
