People have said over and over that the market for refinancing home mortgages is full. The refinance bubble looks like it's about to pop. As the number of late payments, bankruptcies, and foreclosures rise, it is becoming less profitable to refinance a home mortgage than it used to be. Are you a part of the subprime home mortgage refinance scenario? Then it's time to take a close look at what's going on now.
Costs of homes are going up
The price of houses has gone up sharply in the real estate market, which means that most people can't afford to buy a new home for such a large amount. Even people who pay their home mortgage refinance every month are finding it harder and harder to keep up with rising prices. Interest rates have gone up, which makes things even worse for homeowners.
Why did it go up so fast?
Interest rates and other costs related to real estate have gone up for many different reasons. First of all, most people who borrow on the subprime market are people who have already been turned down on the prime market because of its stricter eligibility requirements. This means that the subprime home mortgage refinance lenders give them loans with less strict requirements. Some of them may even require less paperwork and background checks on the borrower. Under the subprime market home mortgage refinance lending process, even borrowers with a low credit score may be able to get a loan.
The real estate market is in trouble.
The number of late payments and defaults is at an all-time high. In the home mortgage refinance world of today, foreclosure and "real estate owned" (REO) are common. Most of the reason this is happening is because rates have been changed. Most of the time, subprime home mortgage refinance lenders get borrowers by offering a low introductory rate. After the promotional period, when this rate goes up, it's a nightmare for both borrowers and lenders. The borrower can't pay back the money, and the lender has almost no chance of getting it back. This is also called "predatory lending," and it's kind of like luring a prey with a good interest rate to catch it. Once a customer who doesn't know what's going on gets caught in the web, there's no way out, and the home mortgage refinance lender gets as much money as possible from the borrower. In the long run, this means that investors lose faith in the company that lends money to pay off mortgages. This can have an effect on the prime market, and borrowers who might qualify for the prime market might not qualify. This hurts home sales and the real estate market.
More and more competition
With the recent drop in home sales, most mortgage refinance lenders aren't sure how much they can make in the future. They prefer to be less hopeful about the subprime market's future. But this hasn't stopped lenders from competing very hard with one another. In fact, competition has gotten worse because every lender wants to make a quick buck or two in the shrinking home mortgage refinance market.
