Confronting the Sub-Prime Mortgage Crisis: Real estate professionals should know what to do in case a claim is filed


No one can pick up a newspaper today without coming across another article about the sub-prime mortgage meltdown and credit crisis. It’s a mess that has no doubt left many mortgage brokers and real estate agents wondering how to defend themselves should clients file disputes. There are a number of things agents and mortgage brokers can and should do to protect themselves.

The development and availability of exotic loan products over the last four to five years was driven primarily by consumer demand. Droves of consumers wanted to jump into the real estate market but could not afford to do so through conventional, FHA-backed loans. To meet that demand, lenders developed a number of products geared to the sub-prime mortgage market. Unfortunately, buyers were not always apprised of the hidden pitfalls associated with sub-prime loans.

Sub-prime loans were never designed to remain in place through the adjustment period. The plan was to get home buyers into a property at a monthly payment they could afford. To keep the payment low, a large portion of the monthly mortgage payment was deferred to the principal amount of the loan. Further, the low monthly payment that buyers counted on was only guaranteed through the adjustment period. At the expiration of that period, the loan rose to fully indexed rates.

We are now seeing a dramatic increase in lawsuits related to the subprime mortgage crisis.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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