In
today's world everything revolves around credit. Knowing how to use and manage
that credit is vital for a stable economy. To take it even further, the
management of our personal credit is essential for us to maintain a stable
livelihood. Recently, due to poor decisions made by the sub prime mortgage
industry, and also poor decisions made by many consumers, we now find
ourselves facing the largest foreclosure rate in history. Good management of
credit leads to success and prosperity, while mismanagement of credit can often
lead to terrible loss. Although credit runs the world, when we let credit run
our lives, it is a sure formula for disaster.
Today, having good credit is vital in getting a good loan with a good
interest rate. One of the biggest reasons we are having so many foreclosures in
our country today is due to consumers not having good credit. For about 8 years
lenders have been lowering their credit qualifying criteria to enable more and
more consumers to be able to qualify for a mortgage. This is what started the snowball of foreclosures in the past couple of years. Here is one
example of what has happened. For several years many lenders have had what they
called an 80/20 loan program. An 80/20 loan is where the lender gives you an
80% first mortgage, and then the same lender or maybe a different one gives you
a 20% second mortgage to cover the remainder of the loan. Why did they do it
this way? The lending industry did it this way because many people could not
qualify by the normal standards of getting a 95% first mortgage and putting 5%
down. Many people did not have the 5% to put down. There were even people with excellent credit
that did not have the 5% down payment.
This caused the market to slow down, and therefore, the lending industry had to
come up with a way to originate more loans. The solution was the 80/20 loan program. By
loaning the borrower the 20%, it was the same as giving them a 20% down
payment. With a 20 % down payment, this enabled the lenders to not charge PMI
(private mortgage insurance). With at least 20% equity in the property, borrowers
did not have to pay PMI. Why is this so important? By not paying the PMI (which
could amount to several hundred dollars a month or more) the borrower could
now have a lower monthly payment and could therefore, QUALIFY with a 100%
financed property.
Now here's the real kicker! In addition to giving an 80/20 loan to these people, the
lending industry lowered the credit requirements to a minimum of a 580 credit
score with NO ASSETS. Basically, what this means is millions of people in
the country were getting mortgages with bad credit and no assets. These people
had no business getting a mortgage. The lenders took advantage of these people
and put them into these loans with adjustable rate mortgages, expecting their
credit to get better in a year or two. Then the lenders could refinance
the people out of these horrible loans. Guess what? It never happened. As a
result, today we have millions of people in foreclosure and more are coming in
2008. What does all of this mean? It means that the housing market is falling
in value all across the country, and we, the consumer, will be paying for this
for many years to come.
The type of loan that I just spoke about is what is called a "sub
prime" loan. It's a horrible loan that no one should ever get into. How
do you keep from getting into this position? Listen closely to what I am about
to say. You learn all there is to know about credit, and you learn how to
manage your credit, so that you will NEVER have bad credit. Bad credit as we
all know, is like a huge weight pulling you down. You end up paying four or
five times more in interest than someone with good credit will pay. This
website will help you to understand all about credit, things to do, and THINGS
TO STAY AWAY FROM. After reading through all the information on this website, you
will know more about credit than 99.9% of the consumers out there today.