Subprime Lending Simply Filled a Niche

Jan 3rd, 2008 @ 6:55 AM by MortgageMentor

Most of the focus pertaining to the current condition of the housing market has been on subprime lenders. That’s because a few unscrupulous lenders took advantage of some borrowers. These lenders either didn’t explain the “fine print” to the borrowers, or created a bait-and-switch for borrowers who actually could have gotten a better rate with considerably less fess. These few lenders ruined the reputation of the entire subprime market.

Subprime borrowers do not usually meet the “standard” in some way: credit, down payment ability, income, or type of job. Many self-employed individuals fall into the definition of a subprime borrower, for example. Conventional lenders have offered them loans on a case-by-case basis, leaving an opening for someone (which turned out to be the subprime lenders) to take advantage of this group of borrowers. Subprime lenders have created a very specialized niche for themselves by offering loans to these borrowers. They offer many types of loans, including adjustable rate mortgages and balloon mortgages.

There has been a great deal of mud-slinging, with most of it aimed toward the subprime lenders. However, less that 15% of these loans are actually in trouble at this time. The fact is that everyone in the process lost sight of caution. There was not only overlending; there was overbuilding and overselling and yes, overborrowing. The housing market is cyclical. The overborrowers simply need to learn from their mistakes; the rest of us need to learn from them as well. There will always be lenders who find special niches to fill –that’s called good business. There will always be unscrupulous behavior, even though the regulations are tightening. Buyers must learn to protect themselves, and to understand the nature of the market.