CNNMoney.com reports that an increasing number of homeowners with subprime mortgages will lose their homes to foreclosure in the next few years. Subprime loans are those with higher interest rates and are given to people considered higher risks by the credit industry. The higher interest rates increase the likelihood of a default, along with other features lenders include in these mortgages to make it more likely the loan will fail. Some of the other features in such loans are adjustable interest rates, balloon payments, prepayment penalties, and limited loan documentation.
The most prominent feature causing defaults is the "2/28 loan" in which there is a low "teaser" interest rate for the first two years, with dramatically increasing interest after the two year period and increasing every 6 months thereafter. Some commentators refer to these loans as "exploding ARMs". Some lenders are accused of extending loans to people who cannot afford them. The reason lenders extend these loans is that they sell them very quickly after the loan is issued to maximize their profit. The lenders do not care how the borrowers pay the loan long term.
If you have a subprime loan and are having problems making loan payments or expect to experince payment problems, you may have a claim against the lender for predatory lending. You may aso be able to save your home through a Chapter 13 bankruptcy. It is important to seek solutions for your financial dilemma sooner rather than later - the longer you wait, the more difficult it is to save your home. Please call our office if you are overwhelmed by your mortgage.