The Biggest Banks Are Eliminating The Most Prevalent Sub-Prime Loan

One more sign that the sub-prime apocalypse is upon us...

Washington Mutual, Countrywide, Wells Fargo, and Merrill Lynch's First Franklin all recently announced the discontinuation of the staple 2/28 sub-prime mortgage product. 

The "2/28" is an adjustable rate mortgage in which the interest rate remains fixed for two years, and then adjusts for the loan's remaining 28 years.  Think of it like a 2-year ARM, if that helps.

But that's not the end of the changes. 

WAMU and First Franklin took it a step further, eliminating the 3/37 from their respective sub-prime product menu altogether.

Because the four lenders named above are the market leaders and are major buyers of sub-prime loans nationwide, expect other sub-prime lenders to follow their lead very, very soon.  I won't document the list of lenders, but just be aware that's happening.

As it has been since September 2005 when sub-prime first exploded, life as a sub-prime borrower is a challenge.  The importance of keeping your finances in order cannot be underestimated. 

One missed mortgage payment, or a late credit card bill won't do you in, but a series of them will because that is one characteristic of a sub-prime credit profile.

Look, folks, sub-prime mortgages are not designed to be long-term solutions.  The proper use of a 2/28 is to apply it to reach a short-term goal (i.e. pay off debt, purchase a home) and then manage and monitor your finances to get "a better loan" as soon as possible. 

Sub-prime mortgages are stepping stones into Conforming World and nothing else.  Sub-prime homeowners should approach their sub-prime loans as their gateway to a better financial life.

If you believe you are a sub-prime borrower, speak with your loan officer and/or financial planner.  If you don't have a plan to exit the sub-prime arena, make one -- your ability to get a sub-prime home loan in the future will certainly get harder before it gets easier.