Please don't tell me to get creative

Fremont Investment & Loan is the latest sub prime lender to shut it's doors. It's not the first, nor will it be the last sub prime lender to share the same fate. Those who will survive, are tightening their underwriting guidelines and raising their prices. Why should you care? Because it means you need to familiarize yourself with prospect of your loan originator's inability to finance a lot of prospective buyers.

Forget for a moment the people who really had no business getting a loan (strait out of chapter 13 for instance). This shift in the market is going to effect buyers who are pretty good at making their payments, with just a stumble here or there. Maybe they got behind on their car loan for three months. Or someone who struggled through an extended hospital stay. There are going to be buyers who can't get a decent loan, even though you think they should. Trust me, no originator wants to tell you "no", but it's going to happen much more often than before.

As a mortgage professional, my hope is that you accept this and think long term instead of making the mistake of trying to find a more "creative" lender. A shady lender will find a loan for a borrower like this. The problem is that it will likely be predatory in nature and probably harm the buyers credit more than help it. You may be able to sell them a house, but they'll look back with disdain at the mortgage noose you helped lay around their neck.

There is an opportunity here however. Think of the long term effects of helping your buyer clean up their credit before you strap a mortgage on their shoulders. Now you have a customer for life. As loan originators pay sales call to your office, drill them on what sort of plan they have for getting sketchy credit borrowers into the good credit category. The discussion may tell you a lot about who you should work with in the future.

--Todd Carpenter, Lenderama

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