You read it everywhere, its in the news every night. "The Subprime Crisis!" Subprime lenders are closing their doors, prime lenders are laying off people who work the mortgages, and mortgage brokers are closing up shop. If you believe the media, it sounds like millions of people are turning in the keys to their homes.

It has been stated that 1/4 to 1/3 of U.S. households have a subprime mortgage. The latest MBA survey states that the delinquency rate for mortgages on one to four unit properties was 5.12% in the second quarter, up from 4.84% in the first quarter and 4.39% a year ago. Only a percentage of delinquencies ever enter the foreclosure process - many delinquencies will always exist without ever entering into the foreclosure process because they are late pays - often the very reason someone would need a subprime loan.

The foreclosure filings data from Realtytrac, shows that 179,599 homes were in foreclosure in July (default notices, auction notices and bank repossessions). California reported 39,013 foreclosures, the most foreclosure filings of any state. California holds 17% of all subprime ARMs and more than 19% of the foreclosure starts on subprime ARMs. California, Florida, Nevada and Arizona hold more than 1/3 of the country's subprime ARMs and more than 1/3 of the foreclosure starts on subprime ARMs. Home prices have dropped in all four states, and most of the metropolitan areas in these four states saw home price declines during the second quarter, according to the Office of Federal Housing Enterprise Oversight. If it were not for the increases in foreclosure starts in these four states, we would have seen a nationwide drop in the rate of foreclosure filings.

These four states have disproportionate high share of investor loans by buyers who do not plan to live in the home, and declining home prices make refinancing these ARMs difficult if not impossible. The 'non-owner occupied' share of defaulted loans in foreclosure was 32 percent in Nevada, 25 percent in Florida, 26 percent in Arizona and 21 percent in California, compared with 13 percent in the rest of the nation.

Investors who speculated the increase in home prices would continue are now left holding a home that does not appraise for even close to what is owed on the home. Similar to a game of 'Hot Potato', some people have been caught in a very frustrating and damaging situation due to taking too much risk at a bad time.

Based on the numbers, the question becomes "Is the subprime and foreclosure crisis a national problem or is it more a reflection of four local housing markets with numbers so high that they drive the national numbers"?

SCAMS YOU SHOULD BE AWARE OF !

Types of scams

There are several prominent kinds of scams doing the rounds, many of which may entrap unsuspecting borrowers. Here we list out some of them:

* Equity stripping: This typically involves a practice whereby even if the borrower doesn't have sufficient income to support monthly payments on the home equity loan the borrower is still lured into securing a loan. The reason? The lender is never interested in the ability of the borrower in making monthly payments. The final objective is to secure the home. Therefore once the borrower is unable to pay the monthly payment on the home equity loan the lender will foreclose thus taking possession of the home and the equity.

* Hiding terms of the loan/ Balloon payment: This is probably even worse than equity stripping. In such cases, if the borrower is about to face foreclosure due to inability to keep up with monthly home equity loan payments, another lender offers to come to the rescue. In this scheme, the interest rates are lower, which may entice the borrower. However payment towards the home equity loan in such cases will only involve paying towards the interest. On completion of the loan term, the lump sum of the entire principal amount is expected to be paid by the borrower. On failing to pay this amount, the loan is foreclosed and the home is taken possession of by the home equity loan lender.

* Loan flipping: This practice is very common. If a homeowner has had a mortgage for quite a few years and wishes to get some extra cash, a lender will promise to do the same by offering a refinancing option. After opting for this refinancing option, once a few payments on the home equity loan is made, the lender will call to offer a bigger loan for a larger expenditure, probably a grand vacation. The borrower goes for refinancing, without knowing that each time he refinances, his debts are shooting up. This is because of rising points and fees on every refinancing.

* Home improvement loan: This is probably more of a nightmare than a home improvement scheme. A contractor will offer to remodel and refurbish your home for a reasonable cost. The contractor will also mention that he can get the work done through a lender he knows. Once the work starts, soon after the borrower is asked to sign a host of papers. The papers maybe blank or else maybe asked to be signed in a hurry. The borrower does not get a chance to read the terms and conditions. Only later does he realize it's a home equity loan. The contractor may or may not complete the work on the house as he has no interest now that he has got the borrower's money

Predatory Mortgage Lenders - How to Avoid Becoming a Victim

Predatory lenders are anyone that takes advantage of homeowners and their mortgages. Predatory lenders charge excessive fees for their services or force homeowner to purchase products or services they don't need. You can save yourself headaches and aggravation along with thousands of dollars by avoiding becoming a victim of predatory lending practices. Here are tips to help you spot a predatory mortgage lender.

Excessive mortgage origination fees and points are one sign of predatory lending practices. Mortgage lenders try and disguise these fees by financing them as part of the loan. No closing cost mortgages are one example of this type of scam. Mortgage lenders distract you with the fact that you will not have to pay fees at closing; the lender then marks up the interest rate or tacks fees onto the loan principal.

Honest mortgage lenders typically charge around 1% of the loan amount for these fees. Predatory lenders charge as much as 5% or more. This can cause you to overpay thousands of dollars over the term of your mortgage.

Excessive prepayment penalties are another sign of predatory lending practices. Most mortgages today do not charge prepayment penalties. Many bad credit mortgage lenders add prepayment penalties to their loan contracts. Some of these penalties are the equivalent of six months of interest payments. These fees generate significant income for shady mortgage lenders when the homeowner refinances the mortgage.

Mortgage broker kickbacks are another fee you should be wary of. Mortgage lenders will often give the points you pay to the broker as a bonus. Some brokers refer loans at a much higher interest rate in order to receive a commission from the lender. These excessive fees as kickbacks to a dishonest mortgage broker can cost you thousands of dollars.

Another predatory practice requires the homeowner to refinance the loan at regular intervals. This is called "loan flipping" and allows the lender to charge multiple refinancing fees. This process hurts the homeowner by reducing equity and increasing the monthly mortgage payments.

Any lender that requires a homeowner to purchase services or insurance products such as life insurance to qualify for approval is guilty of predatory lending practices. This includes requiring the homeowner to agree to dispute arbitration. Agreeing to arbitration limits homeowner's legal rights and favors the lender. Avoid any mortgage lender that requires dispute arbitration or requires you to purchase additional services to qualify.

By educating yourself to recognize pressure sales tactics and predatory lending practices you can protect yourself from becoming a victim. There are honest mortgage lenders; however, you need to learn the warning signs to avoid the dishonest lenders

Beware of Shady Subprime Mortgage Lenders

be careful of unethical or predatory lenders. Whether you are looking online or offline for a mortgage lender, it is becoming increasingly more common that subprime lenders are taking advantage of bad credit borrowers.

Many lenders will take advantage of borrowers with recent bankruptcies and bad credit because they know that the borrowers loan options are limited. Sometimes these lenders will charge excessively high fees, extensive pre-payment penalties on the home or ask for a fee upfront to "process" the loan.

Here are some tips on applying for a mortgage loan after a bankruptcy:

Beware of the Lender Asking For a Fee Upfront - Anytime you are applying for a mortgage loan, the only fee you should ever have to pay is the application fee which covers the cost of the lender pulling your credit application. Some lending scams involve asking for a processing fee of hundreds to thousands to process the loan.

Compare Loan Offers - If you can compare from 3-4 mortgage application quotes then you will know what to expect the current interest rate for subprime mortgage loans to be. If you accept the first mortgage loan offer you have, you may be paying a much higher interest rate than what is reasonable for your credit history.

Get Closing Costs in Writing - Brokers know that if a borrower has bad credit, they are most likely going to be more concerned about getting a reasonable interest rate and just getting approved than making sure they get normal closing costs. This is where many lenders will ding the borrower with credit problems. They will sometimes charge excessive closing cost fees. Get the list of closing costs in writing ahead of time and then do research online to make sure that the costs are reasonable. If the costs are not, go back to the lender and tell them that the closing costs are too high and you will not go through with the loan until they are lowered to be what is normal. The broker will usually comply, because they don't want the loan to fall through.