Why the Mortgage Game is Getting Pricier to Play

Gone are the days when subprime borrowers found willing lenders lining up to approve a mortgage. And with good reason. The recent spate of record defaults has many lenders toughening their standards.

A recent article in Bankrate.com stated that, "These stricter lending standards are the fallout from the meltdown in the subprime mortgage market."

Currently, that affects around 15 percent of mortgage borrowers nationwide. Those borrowers with credit scores of 620 or higher need not worry. At least not yet, as long as a borrower is willing to allow the lender to verify income level and assets.

The thing that most borrowers are not aware is that higher than normal default levels could eventually hurt even credit-worthy borrowers, as lenders are forced to make up their losses. In order to recover, lenders will inevitably pass these losses along to the consumer in the form of higher rates. Of course, the first to feel the bite will be those with bent credit.

"Rates on the most popular type of subprime loan, called a 2/28 mortgage, have gone up about 1.5 percentage points to 2 percent," says Jim Svinth, chief economist for Lending Tree.

These loans are are intended to be employed for only 2 to 3 years, after which a borrower is expected to refinance at a lower rate.

Bankrate.com points out that, "For more than a year, analysts have warned that the loose lending standards of the past few years would result in a spike in foreclosures. That's starting to happen among subprime borrowers."

The real culprit, of course are the mortgage brokers themselves, who are all too eager to scoop up high-risk mortgages, because of the profits. What with prepayment penalties, the industry's highest interest rates and investors lined up to back these mortgages, the subprime lending market has become a kind of Godzilla, looking to feed on those who can least afford to pay. Just like the Japanese sci-fi creature, taming the beast is not going to be an easy proposition.

Christopher Cruise, a trainer of mortgage brokers and loan officers, states that, "Brokers have multiple lenders to choose from, and if one lender makes a certain loan program unavailable, a broker can probably find another lender who still offers it."