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Why are such loans made?

Posted by Ward-CA- on June 09, 2002 at 6:45 AM

In Reply to: Who are these lenders? posted by greg ca on June 08, 2002 at 4:48 PM

: Surprisingly one of my competitors for preforeclosures are lenders who go after the same properties. Why would they want to lend to these people? Are the points and interest so great that it makes the obvious risk worth it?

: Or do they really want the owner to default on his new loan, so they can eventually acquire the property? One of them told me if there is enough equity he'll lend based on "stated income". Isn't lending with the intent of foreclosing illegal?

: Greg

=•=•=•=•=•=•=•=•=•=•=

Greg,

As you’re aware, there’s a whole strata of lenders who specialize in different loans. There are those prime loan lenders and then a whole host of sub-prime lenders. Loans are graded according to their risk factor and so there seems to be a lender for every borrower, no matter how destitute.

Most sup-prime loans are made soley on the consideration of how much protective equity the owner has available. If it’s sufficient, let’s say 25% or more of the present value of the property and the current market trend is up there will be a lender who will risk making a loan under those circumstances.

Lenders who purposely make a loan to worsen a borrower’s position are known as predatory lenders and a lot of legislation is now being fashioned in many states in an attempt to rein them in.


Hope this helps.


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