Home loans next to low down payments require PMI insurance, so why are bank losing money on sub-prime mortgages?
A home loan with less than 20% down requires PMI (Private Mortgage Insurance). Since most "sub-prime" mortgages would require PMI, why are bank losing so much money on these loans? Shouldn't it be the insurance companies that lose the money?
Answers:
There isn't any PMI on subprime loans, so the answer is NO. A few years ago when the subprime market was at it's meeting, millions of these loans were underwritten and approved. They were typically 2/28 ARM loans and PMI insurance companies would not even insure these loans. The interest rates be high to start with, but fixed for 2 years. The plan be for the borrowers to clean their credit up before the 2 year length was up and then to refinance into a low fixed rate mortgage. Unfortunately, this didn't come about and borrowers who could barely afford the initial payment, no problem couldn't afford the increased payment when the adjustment took place.
PMI insurance is for credit--worthy loans, not subprime loans.
Banks are losing so much money on these loans because people can't afford the spanking new and higher payments and are walking away from their homes. Foreclosure is at an all time large everywhere.
Most sub prime loans don't have PMI. They put them in 80/20 loans, Interest simply loans, adjustable loans that they couldn't afford when the first adjustment period happened, & other ridiculous loans near negative amortization. Those buyers wanted what they looked-for when they wanted it & never looked beyond the first payment. Many of them are as guilty as the lenders.
Related Questions:
First time home buyer/Mortgage quiz?
My fiance and I are looking to purchase our first home in the beginning of 2010. I produce roughly $43,000/yr and he makes roughly $38,000. is a house around $140,000 affordable for us without a generous down payment? How much would our monthly mortgage roughly be? Would we get...
Answers:
There isn't any PMI on subprime loans, so the answer is NO. A few years ago when the subprime market was at it's meeting, millions of these loans were underwritten and approved. They were typically 2/28 ARM loans and PMI insurance companies would not even insure these loans. The interest rates be high to start with, but fixed for 2 years. The plan be for the borrowers to clean their credit up before the 2 year length was up and then to refinance into a low fixed rate mortgage. Unfortunately, this didn't come about and borrowers who could barely afford the initial payment, no problem couldn't afford the increased payment when the adjustment took place.
PMI insurance is for credit--worthy loans, not subprime loans.
Banks are losing so much money on these loans because people can't afford the spanking new and higher payments and are walking away from their homes. Foreclosure is at an all time large everywhere.
Most sub prime loans don't have PMI. They put them in 80/20 loans, Interest simply loans, adjustable loans that they couldn't afford when the first adjustment period happened, & other ridiculous loans near negative amortization. Those buyers wanted what they looked-for when they wanted it & never looked beyond the first payment. Many of them are as guilty as the lenders.
Related Questions:
First time home buyer/Mortgage quiz?
My fiance and I are looking to purchase our first home in the beginning of 2010. I produce roughly $43,000/yr and he makes roughly $38,000. is a house around $140,000 affordable for us without a generous down payment? How much would our monthly mortgage roughly be? Would we get...