The US subprime market has gained substantial importance over the passage of time. The practice of subprime lending is particularly important for those borrowers who are denied by the common lenders due to their poor credit records. Risk is the prime feature of US subprime market. Unsatisfactory credit history, high rates of interest and unfavorable financial state of affairs distinguish the subprime lending from all other types of lending activities. As the term (subprime) suggests, the subprime market basically deals with all those lending processes in which the financial conditions of the borrowers are far from being perfect. Subprime auto loans, subprime mortgage loans, subprime transactions through credit cards and all such imperfect lending practices come under the purview of subprime market.
More about the Variations in Subprime Mortgage
Subprime mortgages are classified in accordance with the different categories of consumers who generally receive the advantages derived from the subprime lending. As per the rules suggested by the US Department of Treasury in the year of 2001, US subprime mortgage mainly cater to the financial requirements of the borrowers who are plagued by severe financial problems like bankruptcy, poor repayment capacity and huge repayment obligation. The credit scores designed by FICO, which rank the borrowers on a credit scale of varying from 300 - 800, assign less than 620 to the subprime borrowers.
Some other major variations of subprime mortgage are as follows:
Pick a Payment Mortgage: It provides the borrowers with the option of selecting the modes of monthly payments. Interest only, total payment and minimal payment are the three available options to choose from.
Interest-only Mortgage: This type of subprime mortgage comes with the provision of interest payment obligation only, usually for a time span of 5 to 10 years.
Mortgage with initial fixed rate: In this type of subprime mortgage the rate of interest that is initially fixed can be changed with the passage of time. As a result of this the mortgage rate turns into a variable one.
The last category of subprime mortgage has gained substantial popularity in the US subprime market since the early part of 1990s. The 2-28 loan is the lending instrument that is extensively used under the last option of subprime mortgage. The 5-25 and 3-27 are the other two preferred varieties of 2-28 subprime mortgage loan.
US subprime market at a glance
The performance of US subprime market was satisfactory for quite some time. The subprime mortgage lenders faced the associated risks of operation through proper realization of market demand for subprime loans. However, the controversies have always been an inherent problem for the US subprime lenders. Opponents of subprime lending have pointed towards the predatory lending that is prevalent in the subprime market of the United States. Discrimination of mortgage on a racial basis has worsened the situation further. Controversies associated with seizure of security acting as collateral, non-payment and foreclosures have restricted the domain of US Subprime market. The crisis in the US subprime market started to gain prominence since the later months of the 2006
Importance of the Mortgage Brokers
In every developed country of the world, the function of a mortgage broker has become indispensable. On behalf of the mortgage lenders, the mortgage brokers perform a number of tasks and in this way, it is easy for the mortgage lenders to transact with the mortgage borrowers in a speedy and efficient way. By taking the assistance of the mortgage brokers, the mortgage lenders can deal with the competition effectively. A mortgage broker can help a customer get a fair idea about the mortgage market. People who have poor credit rating often find it hard to obtain a mortgage loan. A mortgage broker can also help in this regard and find out a bad credit mortgage lender for them, because they have a lot of exposure to the mortgage market.