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January 05, 2006
SUB 500 Mortgage Inc.
Thanks to email@example.com for pointing out a company specializing in mortgage loans for people with abysmally bad credit--FICO scores below 500.
The San Diego-based company, SUB 500 Mortgage Inc., illustrates the home page of its website with a driver's eye view of a race track, which I guess is the revved-up perspective of people who actually think they can go out and buy a house with severely impaired credit.
Rates start at just over 10%.
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Wow! Your apprentice, firstname.lastname@example.org, has some real issues that are probably going to require a lot of therapy. But first, why the negative attitude towards Sub500Mortgage? Last time I checked we still had a free market economy that allows buyers and sellers the opportunity to choose. Sub500 is fulfilling a market niche by providing money based on factors other than the credit score. And guess what? The investors that are giving the money to Sub500 to give to borrowers are completely aware of who they are lending to. But, unlike you, they are not part of the herd that believes credit scores are a crystal ball. They are putting up money for as long as 30 years to people with "bad credit." It takes guts but they also get a higher return for their risk. What's wrong with that? Do you really have a problem with a higher return on higher risk? More importantly, Sub500, is putting more emphasis on payment history and loan to value. I mean, really, how many people are going to walk away from 30% equity? Would you walk away from $60,000 on a home worth $200k by letting it get foreclosed? Sub500's website shows they only lend up to 70% of the home's value. If the borrower gets in financial trouble then they sell the house and keep their 30% minus closing costs. Where's the problem? Unfortunately, almost all financial lending decisions are made with the heaviest emphasis on the credit score. As a loan officer, right now, I'm looking file that has a 120 point discrepancy between the low score and high score: 520, 555, 640. Those scores don't mean a lot to me. I'm more concerned about job history, continued prospects for employment and savings. Do I really care that one credit bureau is reporting a 520 score because my applicant's insurance company doubled billed him and the unpaid chargeoff went to 3 different collection agencies? Or that he didn't pay a $25 returned check to the local video store? Let's all try to do a better job by digging just a little deeper.....don't forget the human equation. (I have no affiliation to Sub500, just too much time on my hand because of senseless credit computer models)
Posted by: Galleria Panhandler at January 5, 2006 08:13 PM
I have read that blog for quite a while now. I think you need to read more than one snip of his blog to get a picture of what AFB is talking about.
If you read the blog, He is talking about borrowers with low fico's that need high LTV's. He actually refers people to sub500 if his lender cannot do the loan.
He has made some of the same arguments you made in the past. I have learned a lot from his blog.
Posted by: Steve at January 9, 2006 08:18 PM
Thanks to Peter Coy for posting my thoughts and Steve for his feedback.
After catching Mr. Coy's remarks and followiing the link to AFB I quickly noticed a current blog concerning a generalizaton of America's declining math skills. I didn't come away from AFB's presentation with a positive impression because of this remark: "...I fault the "do gooding" lender that gave them a loan (actually multiple "refi" loans) in the name of "helping them achieve the American Dream of home ownership". Since these borrowers obviously aren't that 'up' on basic math, I'm sure the broker realized it, and made a fat commission on them..."
It sounded paternalistic. Couple that with the confusion of AFB's arguement that lenders are causing the housing bubbles while simultaneously advertising for 1.5% interest only loan programs and foreclosure lists and you can understand my quick first impression.
However, after reading Steve's post I reviewed more of the site and agree that there is some interesting knowledge to be found there. Personally, I would have packaged the same theme in less coarse and controversial manner, but that's me. My remarks were intended to put in perspective the relationship between credit scores and interest rates. If credit scores are so important then why doesn't the US Government use them when insuring FHA and VA loans? The answer is because they are unreliable and incorrect. As for Mr. Coy's AFB rate comment concerning "Rates start at 10%", according to www.hsh.com the national mortgage monthly average in December 1983 was 13.4%. Okay, that was a long time ago but the point is that we are coming out of a nearly unprecented time were we have enjoyed and come to expect dirt low interest rates. My question is who was loaning out millions of dollars at 4% fixed for 30 years during the Refi Boom? How do you make any money at 4%? If your financial advisor tried to sell you on an annual compounded portfolio return of 4% you would probably nod your head pleasantly and make a courteous exit as soon as possible. In summary, our low rates are going the way of the dodo and we all need to understand and accept it while turning our national skepticism on foreign companies (ie, Experian or GUS PLC as they are known in the UK) reporting erroneous information that impacts the financial lives of millions of Americans. Thanks again to this commercial forum for the opportunity to publicly express freedom of information.
Posted by: Galleria Panhandler at January 10, 2006 07:40 PM
I am in of a sub 500 mortgages lender name and tel, if you could help me out with that.
Posted by: Carolyn Parker at January 30, 2007 12:08 PM