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Sub prime loan metldown


A guide to understanding what a sub prime loan was and how it led to the credit crunch


Mortgage lending has changed dramatically over the past 30 years. In the 1970's you needed to have twenty percent down to obtain a mortgage most likely through your local bank. The market evolved and mortgage lending became more mainstream. One of the by products was the sub prime loan. Sub prime loans could be categorized as mortgage loans provided to borrowers with credit scores under 620, prior mortgage late payments, bruised credit or someone who may have had a bankruptcy or foreclosure in the past seven years. In the most ideal world these loans would have been used as tools to purchase a home and rebuild someone's credit, unfortunately they were offered to buyers to cash out equity, borrow more than they could afford and often came with pre payment penalties and teaser rates that when adjusted the homeowner could no longer afford the houses payment. This became the catalyst for many homeowners entering foreclosure, losing their homes and the end result is a housing market that has seen a dramatic drop in values and a credit industry in peril.

11-25-2007 ? LoanNetwork.com





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