Sub-Prime Mortgages Are
Not Just About Consumers
With ‘Bad Credit’ – You May
Have A Sub-Prime Mortgage
A common misconception is that the sub-prime mortgage crisis is only
about loans made to people with “questionable” credit. Not so.
In a recent Wall Street Journal (WSJ) analysis, 55% of all sub-prime mortgage
loans made in 2005 were to people with “credit scores high enough to often
qualify for conventional loans at far better terms.” Worse yet, in 2006, a stag-
gering 61% of sub-primes were made to people with good credit scores!
So, what’s going on? Why did people with good credit decide to pay higher
interest rates, larger monthly payments and more loan fees? Why would
anyone do that?
1. Good Sales Pitch – According to the WSJ article, a “compensation
structure” rewarded brokers for persuading YOU to take a loan with an
interest rate higher than one for which you might have qualified.
In short, mortgage brokers steer consumers to sub-prime loans so the
broker will get a more hefty commission. No Gateway Metro employee
works on commission. The WSJ article quotes a California real estate
official as saying consumers were “totally ignorant and unsophisticated
borrowers who had good credit, but were duped into loans they had no
hope of repaying.”
2. Financial Literacy Deficiency – Because it’s not our expertise, most of us
are highly deficient in being up to speed when it comes to dealing with
important financial decisions such as financing a home.
Many brokers prey on that weakness. A 2005 Federal Trade Commission
study found that borrowers were “confused by current mortgage cost
disclosures and did not understand important costs and terms” of their
mortgage.
3. Didn’t Visit Gateway Metro – Trite but true, the most reliable place to
get accurate consumer information and the best financial deal is your
member-owned credit union. But be careful. Not all credit unions are
the same. Therefore, you must call Gateway Metro.
Why? No other credit union in the Midwest exposes its employees to the
same combin