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Bad News for Mortgage Industry

This Reuters's news story is about the continuing profit losses in the subprime mortgage industries. Subprime mortgages are home loans given to customers with bad credit and partialy disclosed income statements. The result is that borrowers are charged with prohibitive interest rates compare with their counterparts who get low interest rate because they have excellent credit credit. These prohibitive interests, in recent months caused many homes to be foreclosed by lenders due to non-payments.

The story was focused on American Home, the latest financial institution to losses. There were opportunities for attribution in the third and fourth paragraph when he said that home loans to borrowers with poor credit histories may be spreading to higher-quality loans; he needed to mention the source when he said that American Home specializes in prime and near-prime loans and makes roughly 2.5 percent of all U.S. mortgages.

The first quote in this suggested that the writer did not talked to the soure. Was this an email interview? clarity was compromised here. There was no quotes from those impacted. It waould have been good to hear from subprime mortgage borrowers. On the plus side, the story was well researched with appropriate links attached for further information for those interested in the current trends in the housing markts. read it at:

http://investing.reuters.co.uk/news/articleinvesting.aspx?type=tnBusinessNews&storyID=2007-04-09

The same story in the online Forbes magazine was much harder to understand. Clearly it was directed at a much more sophiscated audience.

The first problem with version is the found in the lead. The word "securitized" could be subtituted for a much simpler word. in the second paragraph another tumbled could simply be replaced for fell. "Analyst polled", "secondary securitization," where some the words and phrases that could make ordinary reader stop.

Like the first version, there was no input from the affected audience or its leadership. In this sense, the principles of fairness and balanced reporting were ignored. Read the Forbes article at:

http://www.forbes.com/markets/2007/04/09/ahm-alta-guidance-markets-equity-cx_af_0409markets04.html


Comments

The facts of this article cannot be argued and the prime role of any advisor/loan writer is never to guide the client into a loan that may become too difficult to service.

Although we deal exclusively in the Australian home loan market the situation is the same as in the USA. An expensive loan will be the first loan that defaults. To overcome this situation we have guided sub prime borrowers to vendor financers to get started. This way they are able to get a loan designed for their circumstances.

They are advised to remain in this loan for two years and, providing they have serviced the loan well, to return to us. Usually we are then able to guide them into a mainstream product for prime borrowers.

We have heard the argument that they pay above market price for the home when using a vendor finance deal. Experience has taught us that the reality is that after two years the equity they now have in the property far outweighs the higher price they paid.

We do not take commissions from vendor financers and have now built a list of trustworthy financers that offer a fair deal to the buyer.