A subprime mortgage is a loan to buyers who may have a difficult time repaying the loan. Subprime mortgages are risky investments for creditors since the borrowers are more likely to default on their payments, but subprime mortgages also give people traditionally excluded from the credit market a chance to make greater types of purchases.
In the early half of the 21st century, subprime mortgages led to a massive world economic recession when the mortgages defaulted. Although mortgage default does not typically lead to recessions, the mortgages were obtained through fraud and predatory lending. Such practices generated an unstable economic environment, an environment which eventually collapsed in 2007.
“Predatory lending” is not a legal term, and refers to a wide variety of lending practices which are generally considered unfair or dishonest, though there is often disagreement on this point between lenders and consumer advocates.
These practices include failure to disclose the terms of the loan, short term lows with high fees, and failure to disclose that a loan price is negotiable.
Recently, the National Association for the Advancement of Colored People (NAACP) filed a lawsuit claiming that some lenders took advantage of unsophisticated borrowers, especially minorities, by roping them into loans with high interest rates, and other forms of discrimination.
To avoid predatory lending, everyone applying for a mortgage should consult with a lawyer before agreeing to anything. A mortgage is a complex agreement, with a great deal at stake, so it makes little sense to sign one without a full understanding of its terms.
Due to the recession, inability to pay off the mortgage is no longer a rare occurrence. As such, there are a number of tactics to pay off and/or delay the mortgage:
- Modify the Mortgage – Creditors would prefer to get some of their money rather than none of the money. Negotiating to adjust the mortgage is often a viable option, especially with federal assistance, such as the Home Affordability Modification Program.
- Foreclosure Defense – Mortgages are part of deeds, which are just contracts. If there are any problems with the contract, than the creditor may be forced to bear the burden of the situation.
- Forbearance – Delay the mortgage for a limited time. Only certain borrowers will qualify though, but when used, can give the borrower time to catch up in payments.
- Deed – In certain circumstances, it may be wiser to just transfer the property back to the lender to avoid having the mortgage show up on a credit report
Many people would characterize student loans as subprime loans because student loans meet the definition of a subprime mortgage perfectly. Although many of the fraud defenses aren’t applicable, student loan payments can be delayed through forbearances and deferments. On rare occasions, typically severe hardship, student loans can be discharged.
Anyone who feels that they have been the victim of predatory lending or a subprime mortgage should contact a real estate lawyer or a bankruptcy attorney immediately. The complexities of mortgages, and of lawsuits likely to arise from them, make it all but impossible for a layperson to pursue legal action alone.