Think again if you expect to easily qualify for a subprime mortgage

The United States housing market has been battling a difficult correction over the past year but one of the most impacting economic factors that many people are not talking about is the rising number of foreclosures and what it means for many mortgage companies across the country that specialize in subprime lending.

And if you do not care much about corporate America and think that if you have to borrow a subprime mortgage, you will make timely payments and avoid becoming a negative statistic, think again; you may never get the chance.

The article, Shifting housing market snubs bad credit, written by Dave Collins for the Associated Press and then posted February 25, 2007 on sacbee.com, explains how subprime mortgages are no longer going to be easy to obtain.

There has been warning over the past year that mortgage lenders will be tightening their underwriting guidelines on subprime mortgages but that talk was more for legal purposes. But now mortgage companies are seeing the affects of lending high rate mortgages to those who default payment and are taking matters into their own hands.
Homeowners with troubled credit histories are finding it harder to get mortgages or refinance homes because softening in the housing market is making lenders less likely to handle riskier loans.

Mortgage companies are looking out for themselves if not for the customer when requiring better documentations and evidence of the possibility to repay a subprime mortgage before agreeing to lend.
On Wednesday, shares of Kansas City, Mo.-based Novastar Financial Inc. plunged more than 42 percent to $10.10 per share after the subprime lender posted fourth quarter losses of $14.4 million. Company officials set aside $45 million in anticipation of defaulting mortgages and said they were unsure Novastar would turn a profit in the next five years.

The major requirement that is changing is the minimum credit score to be approved for a mortgage. According to David Zionts, owner of Connecticut Mortgage Lenders LLC, a borrower looking to take out a 100 percent financing mortgage must now have at least a 600 credit score to qualify opposed to the previous minimum of 580.
A high-value loan with no income verification could be had last year with a credit score of 620 a year ago but now needs a minimum score of 640, he said.

And these credit score guidelines will be less negotiable unlike what they used to be when mortgage companies valued volume over quality. During the booming years, most companies could afford a few defaults here and there because they were originating so many mortgages. The current correction ahs not allowed that luxury.
The most immediate impact will be that both the lenders and investors will be more careful on who they make loans to, said Richard F. DeMong, a bank management professor at the University of Virginia. In Finance 101, we try to teach that return should be enough to compensate for risk.

These stricter guidelines are ultimately being imposed to protect both mortgage companies and you, the borrower but most prospective borrowers would rather be given the opportunity to attempt to borrow a subprime mortgage than be limited.
But for the stubborn subprime mortgage borrower, not all hope is lost.
There's still a saturation of lenders still out there lending in the subprime market, said Phil Cyr, owner of Equity Lenders, a small mortgage company in Berlin, Conn.