Subprime Loans and Rising Foreclosure Fiasco

There are still major problems happening in the US real estate market with foreclosures. According to CNNMoney.com, foreclosures have jumped 90% over last year. To blame is the slowing real estate market and the subprime lending nightmares.
According to RealtyTrac, the US foreclosure rate was one foreclosure filing for every 656 U.S. households during May.
These problems, and numerous others, are encouraging the Federal Reserve to tighten up regulations to slow things down. According to CNNMoney.com, there are four areas where the government and those highly affected by these problems are focusing right now:

1. Prepayment Penalties- Where borrowers are stuck with high interest rates or fees because they can’t afford to pay the penalties involved to refinance or sell to get lower rates and fees.
Insurance and Taxes Not in Escrow- When neither of these is being paid out of escrow and money gets tight, borrowers stop paying these. Taxes get behind and insurance lapses, and the lender is left with the consequences.

2. “Stated” or “No Doc” Loan Programs- These encourage borrowers to participate in what many call “liar loans” where income and assets are exaggerated.

3. Poor Judgement on the Borrower’s Payment Ability- Because most brokers do not have to worry about what happens after closing, deals are made that should not be happening in order to make a commission.

4. Lenders have already begun tightening things up and it’s gotten harder and harder for homeowners to get a good loan on a property, never mind your average investor.