Will Congress Stop Bad Credit Auto Loans & Bad Credit Home Loans?

Will Congress Stop Bad Credit Auto Loans & Bad Credit Home Loans?

by Michael Peterson

Christoper Dodd, U.S. Banking Committee Chairman and U.S. presidential candidate, announced on Monday that he has requested executives from the nations top bad credit mortgage companies to testify at a hearing on this Thursday. The five bad credit home loan companies are: HSBC Holdings Plc, Countrywide Financial Corp., WMC Mortgage, First Franklin Mortgage and New Century Mortgage Corp.

Rep. Barney Frank, Massachusetts Democrat, announced last week that he plans to introduce legislation that would restrict future subprime lending, bad credit home loans and bad credit mortgages.

What is worrisome, is whether, or not Congress will assist in making substantive changes in the subprime mortgage industry, or just "knee jerk" changes, that would only send bad credit mortgage companies into further downward spiral. It appears, that Congress will limit its reach to bad credit home loan companies; however, the hearing that the House Financial Services Committee will have on March 27, will focus specifically on subprime and predatory lending.

I'm sure that the executives called to testify, in these hearings, will cite the industry practices of other subprime lenders that specialize in bad credit loans for cars, jewelry, furniture and etc. If these executives draw "straight lines" of comparison from their practices, to the practices of other bad credit lenders, the entire subprime industry could be legislated right out of existence.

The bad credit auto loan industry could find the same "bull's eye" drawn on its back, that the bad credit home loan industry has drawn its back.

Congress really needs to make sure that these lenders separate subprime statistics from Alt-A statistics. I think this number might shed a little light on the true problem.

During our recent real estate boom, four out of 10 home sales were second homes and investment property. Second homes and investment properties are always non-conforming loans, but not always subprime loans. The underwriting rules, of the most generous bad credit home loan companies, did not allow most subprime borrowers to qualify for a "Pay Option ARM." Only borrowers with good credit, seeking good credit mortgage loans and Alt-A borrowers with a minimum of a 640 mid credit score could even qualify for them.

The Pay Option ARM, also know as "Pick-A-Pay" has proved to be the most "deadly" for borrowers, of all the exotic loan products. It employs negative amortization, and if borrowers "pick" the sub-interest only monthly payment, while the rate and payment are adjusting upward, in just one year they can owe more, each year they do this than the year before!

Compound this with declining real estate values and after one year a typical California borrower, could very quickly be in hole $50K!!!

If you need a bad credit home loan, bad credit mortgage, bad credit auto loan, or a bad credit car loan apply today, while there are still great programs available to help you get financing - no matter how bad your credit is.