What started out as a reasonable strategy to allow first time or low credit score buyers to own homes turned into a predatory lending and default spiral that brought down a $1.1 trillion-dollar yearly industry. In the wake of the subprime mortgage crisis, regulatory bodies and legislators alike stepped in to create safeguards against a future repetition. But the buyers once served by these mortgage brokers, the ones with less than stellar credit, are again looking to enter the world of home ownership. Where will they get the loans to do so?
Less than a decade after the US housing market crashed, subprime mortgages are seeing a resurgence
It seems the market is once again ready to enjoy the profits of lending to buyers who might be self-employed, have previous credit issues, or who have trouble documenting their income. Now the challenge is teaching brokers to successfully navigate the legal hurdles and regulation in the emerging field of “nonprime” mortgages. Supporting that move requires that investment brokers, banks, and firms also once again become comfortable buying and selling these types of funds.
Brokers can package these investments, often under a variety of labels, and sell them to unsuspecting buyers, who may have little idea or interest in participating in the revival of the practice that led to an estimated 10 million families in the US losing their homes. Wary investors should be on the lookout for Non-traded REIT’s – real estate investment trusts. Non-traded REIT’s have significant risk factors for the common investor that make them unsuitable, including high fees, lack of stability, high volatility (or riskiness), lack of liquidity, lack of transparency, and potential internal conflicts of interest.
So why are there initiatives across the country to train lenders on how to legally craft these nonprime mortgages? Because there is money to be made there for the lenders and brokers. Even following the new regulations, interest rates can range from 6-10% – double the rate of 4.5-5% for buyers with excellent credit rating, history, and documentation. Over a typical 30-year mortgage, with the average US new home purchase price of $384,500, that difference means the nonprime buyer could pay up to $513,381 (4.5% vs. 10%) more for the same house. This is money that profits the lender, rather than the homeowner or even the investor in the non-traded REIT. Regardless of the ethics of nonprime lending, for the average investor, these types of mortgages and non-traded REIT’s are unsuitable; brokers who push these types of investments are violating suitability guidelines and laws that protect investors.
After any betrayal of trust, it can be hard to get help. The Frankowski Firm has the skill and industry knowledge to help investors navigate the complicated world of financial law. If you or someone you know has lost money as a result of the unethical practices of a broker or investing firm, please contact the investment fraud attorneys of The Frankowski Firm at 888-741-7503 to discuss your potential legal remedies, or complete the contact form.