Who goes to subprime lenders for home mortgages

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Bronte

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There was a story on the radio of a person in employment who had a mortgage at 11% interest and was unable to make the 24K annual repayment on a loan of circa 270 as they had lost their job. It was unclear if they had made any payment at all ever or could ever have afforded it. Purchase price was circa 340 and current value 240.

Everybody was on the side of the family versus the bad sub prime lender.

How does someone agree to pay 11% house mortgage interest, why would you need a sub prime lender, is it because all other banks would refuse you as too risky? I'm trying to understand how anyone would pay 11% when mortgage rates are 2 to 3%.
 
might be people with bad credit rating or too many loans who chose the "easier" way instead of sorting out their financial situation before they took on a mortgage ...
that said, i don't understand these guys either, subprime lenders make no secret of the extraorbitant rates being the price for getting the loan/mortgage from them and I actually find it hard to believe someone is sooo desperate to buy a house to take on a loan and then have the gall to blame the lender instead of their own irresponsibility
 
I think this was the case where Stepstone got a repossession order earlier this week. It was a couple who had only recently both started working for Waterford Crystal (didn't qualify for redundancy payments) and they took on the loan in April 2008 when the writing was very clearly on the wall for Waterford Crystal. Their monthly repayment was over 2,000. I really don't understand why they did this - the usual Celtic Tiger excuse for buying a house was that it was cheaper than renting - but this can't have been the case here - modest house in/near Waterford. Strange decision to buy. Strange decision to lend.
 
These people already had their own home, which they sold for 70k to 100k profit (depending the different reporters who covered the case). I have heard a number of different reports on the case, but none of them covered the details as to why they bought the house and why they did not seem to pay any money off the mortgage .
 
pennypitstop said:
because we have a culture of 'you have to own your home...at any cost"
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Not taking the subprime lenders side by any means but the vast majority of the lending was refinance and not house purchase. I would hazard a guess at 80%.
 
It sounds quite similar to the case of the couple living in Cavan who appeared on the Late Late. In that case it was a refinancing to spend on a wedding + debt consolidation, which eventually got spent on a SUV (45K), which got written off with no insurance.

No grasp of basic mathematics + zero lending criteria + a desire to have everything now.
 
pennypitstop said:
because we have a culture of 'you have to own your home...at any cost"
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Because prior to recent developments(last 2-3 years), we didn't have decent legislation protecting tenants who were interested in renting on a long-term basis. Landlords could hike up rent whenever they wanted and if the tenant didn't like it then hard luck and move out.


When I worked in a mortgage brokers most banks wouldn't look at you for a mortgage if you had a bad credit history. However, if you could show that you had changed (eg - by paying a sub-prime lender for 3 years with NO missed payments) then the high street banks would have a fresh look at your case and more than likely take the mortgage on from the sub-prime lender.
 
Not defending peoples financial choices but for me of all the things that has happened in banking over the past few years, the biggest crime of bankers and regulators was the exploitation of the vunerable and the naive by the explosion in this type of lending. There is a place for responsible sub prime lending but these guys were nothing more than posh loan sharks in suits. I spent six months doing work for one of these operations and I felt physically sick seeing what they were doing. And worst of all, they operated outside the regulator's remit for most of that time.
People make bad financial decisions for numerous reasons. They do however deserve some sort of protection even from themselves sometimes.
 
What salary would you have to be on to pay 24K a year? Is not 340K a high price for a house in Waterford?

I have heard all on the radio being shocked at this story but no one asked why they took out such a large mortgage on a property they plainly could not afford and at rates of interest beyond comprehension.

How could the couple expect the bank to accept 800 a month when the repayments were nearly 2K. They would never get out of debt and are better off losing the house.

There is something wrong with this story.
 
Sunny said:
for me of all the things that has happened in banking over the past few years, the biggest crime of bankers and regulators was the exploitation of the vunerable and the naive by the explosion in this type of lending
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I have to agree Regulation should not allow this.

At what level does it make common sense to have a section of the market with a massive chance of defaulting?

Even relatively modest sub prime rates of 3% above the normal rate amount to paying 10% extra on the purchase price over the first 3 years.

We know there are idiots out there (and anyone who thinks paying 10% of the purchase price as an extra payment over 3 years is acceptable is an idiot) so why indulge this lunacy?
 
DerKaiser said:
I have to agree Regulation should not allow this.

At what level does it make common sense to have a section of the market with a massive chance of defaulting?
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The business model actually made perfect sense because of securitisation. (Their wonderful models didn't consider a property crash!). The problem is that the whole concept is based on lending to people who are desperate, vunerable or as is clearly the case, financially stupid. Like I say, they were loan sharks in suits.
 
Sunny said:
The business model actually made perfect sense because of securitisation. (Their wonderful models didn't consider a property crash!). The problem is that the whole concept is based on lending to people who are desperate, vunerable or as is clearly the case, financially stupid. Like I say, they were loan sharks in suits.
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The established lenders aren't blameless either in their treatment of poor risks. Most mortgage agreements have provisions for payment of penalty rates of interests for arrears. In the case of Irish Nationwide, they've been known to apply this on the full mortgage not just the amount in arrears - the equivalent of throwing water on a drowning man.
 
Yorky said:
Have to say having experienced Irish landlords from childhood to adulthood I can understand the desperation to own their own home. Not wanting to hijack the thread but here's just a few 'fine-upstanding-pillar-of-the-community' landlord experiences:

Walking straight in to house without knocking and past the family eating their dinner and going straight upstairs.

Expecting a woodworm riddled house to be acceptable to tenants with their own furniture.

Refusing to provide PPSN in order for tenant to claim rent relief or giving a equivalent decrease in rent and then issuing a Notice to Quit when the tenant claims anyway.

Expecting tenants to live in a house with damp blackened walls while they live palatially next door.

Increasing the rent without notice.

Pottering around the outside of the house and looking through the windows.

Being told to <> when tenant asks for a refund of an over-estimated electricity bill.
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I rented from 1995 to 2008 in about 7 different places. Funny enough, landlords and standard of housing improved as the supply of houses increased. If there's one good thing that came from the property bubble it's that renting became a far more enjoyable experience by the end of it.

I had the impression in the 90s that landlords were grubby tax evading mutli millionaires who owned vast slums across ranelagh, etc.

By the mid naughties my experience was of reasonable tax compliant PAYE workers who appreciated their tenants
 
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