A subprime mortgage is a type of loan that carries a higher interest rate than the prime lending rate associated with standard bank loans. In general, subprime mortgages are typically offered to borrowers with impaired credit scores or who do not qualify for a prime-rate loan.

Accordingly, mortgage lending companies who issue subprime mortgage loans are allowed to charge borrowers at a higher interest rate. This is because these loans pose an incredible risk that the lender will not be repaid.

On a positive note, subprime mortgages provide a way for persons who are usually excluded from the credit market to participate and be given the opportunity to purchase larger assets.

However, both lenders and borrowers must exercise caution when entering into such arrangements. The early half of the 21st century is the ultimate example of what can happen when thousands of people default on subprime mortgage loans—a massive economic recession.

While defaulting on a subprime mortgage loan does not always lead to an economic recession, these particular subprime mortgages were assigned through fraud and predatory lending tactics. The end result of such practices being an unstable economy, which eventually collapsed in early January of 2008.

Thus, you may want to consider consulting with a local mortgage lawyer before you apply for a subprime mortgage loan. A lawyer can explain the risks and benefits associated with these types of mortgages, and can ensure you enter into a loan agreement with a legitimate lending company.

Additionally, subprime mortgage lenders will sometimes try to take advantage of persons who are in financially vulnerable positions. Hiring a lawyer can help protect you from acquiring a fraudulent subprime mortgage.

What Is “Predatory Lending”?

Predatory lending refers to a broad range of lending practices that involve deceitful, unfair, and/or fraudulent actions. An example of a predatory lending practice would be if a mortgage lender issued a subprime mortgage loan and either intentionally hid or failed to disclose certain fees. Another example of a predatory lending practice is if a lender issues a short term loan, but charges the borrower an excessively high fee.

No borrower should be subjected to predatory lending practices. In order to prevent such situations from happening, any borrower that intends to apply for a subprime mortgage loan should first speak with a lawyer before signing any loan documents.

Additionally, mortgages often contain complex legal jargon and confusing provisions. A lawyer can go over each clause with a borrower to ensure they understand the terms of their subprime mortgage loan agreement. A lawyer will also be able to spot any details that are not normally included in these agreements and can make sure that no part of the deal is fraudulent.

What Can I Do If I am Unable To Pay Off a Subprime Mortgage?

The devastating effects of the financial crisis have prompted many lenders to change their lending policies. As a result, there are now a number of different options available to borrowers who are struggling to pay off a subprime mortgage.

Some examples of ways that a borrower can pay off or delay making subprime mortgage payments include the following:

  • Modify the mortgage terms: Most lenders would prefer to get back a portion of their money rather than none of it. Thus, lenders are usually willing to work with borrowers to renegotiate the terms of a subprime mortgage. There are also government-sponsored programs that borrowers can register for like Fannie Mae and Freddie Mac.
  • Forbearance: In some instances, a borrower may qualify for a forbearance. A forbearance can be used to delay mortgage payments for a certain period of time. This can give a borrower extra time to catch-up with their repayments schedule.
  • Foreclosure: Sometimes, a borrower will not be able to avoid foreclosure. During the foreclosure process, the lender or creditor takes possession of the borrower’s home, sells it at auction, and collects the proceeds to pay off the borrower’s loan. Unless the borrower can raise a legal defense against foreclosure, such as predatory lending or undue influence, this may be the best case scenario for both parties.
  • Deed in lieu of foreclosure: This tactic is used as an alternative to foreclosure. It allows the borrower to give back the deed to their home to the lender in exchange for being released from the mortgage. However, a borrower must first ask their lender if they would be willing to accept the deed in lieu of foreclosure. The remedy does not apply automatically.

What About Student Loans?

Some professionals believe that private student loans resemble subprime mortgages. They support their reasoning by comparing the definition of a private student loan to that of a subprime mortgage. They also point to comparisons between the rising student debt numbers across the nation and the financial crisis of 2008, which was mentioned in the first section.

Unlike subprime mortgages, however, payments on student loans can be delayed through deferments and forbearances. Thus, fraud defenses will not apply under these circumstances.

In addition, if a borrower fails to make payments on a subprime mortgage loan, the lender can either take their house or they may be able to declare bankruptcy. In contrast, student loans must be paid in full and only on extremely rare occasions have they ever been discharged through bankruptcy. A student would have to demonstrate severe hardship to discharge student loans through bankruptcy and a court would need to approve their reasoning.

Do I Need a Lawyer If I Have a Subprime Mortgage or Thinking About Getting One?

If you need help with applying for a subprime mortgage loan or if you believe you are the victim of a mortgage fraud scheme, you should contact a local mortgage lawyer right away. Alternatively, you can also speak to a local bankruptcy attorney since these types of attorneys usually handle subprime mortgage cases as well.

A lawyer who has experience in dealing with issues involving subprime mortgages will be able to give you general advice about subprime mortgage loans and can recommend the best course of action based on your situation. Your lawyer can also help you draft and negotiate the terms of a subprime mortgage loan. Alternatively, if you already have one, your lawyer can attempt to renegotiate the terms on your behalf by communicating with the lending company.

In addition, your lawyer can assist you in filing a lawsuit against a mortgage lender if they think you have a viable claim. Your lawyer can also provide important legal services, such as performing legal research, gathering evidence, and building a solid case. In the event that your case goes to trial, your lawyer will also be able to represent you in court.