Sub Prime Lending And Foreclosure

One of the factors driving the foreclosure rate is sub-prime lending.

Sub-prime lending is to individuals that did not qualify for market interest rates because of a bad credit history. Such loans tend to have higher interest rates or other fees since they have a greater default risk.

The current crisis occurring in the U.S. right now is that hundreds of thousands of subprime borrowers are facing foreclosure. Congress is currently seeking solutions to this ripple effect and both Fannie Mae and Freddie Mac have developed a new initiative called “Homestay” aimed at helping homeowners work out other solutions to immediate foreclosure.

The Homestay Program works to refinance distressed borrowers into long-term fixed rate products and then counsel them to make better mortgage choices.

Estimates claim that approximately 1.5 million ARM borrowers could be eligible for this new program. Congress insists that while the aim is to help troubled borrowers hang on to their home, the program should not be used as a replacement for the irresponsible practices of certain subprime lenders.

NEXT: The Foreclosure Process

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