Study: Low-Income Borrowers Will Have a Hard Time Borrowing?

Many articles published in the traditional and online media seem to persuade readers that a bad credit loan is a new means of scam. According to these articles, these online loans are schemes that are used as vehicles for personal enrichment on the consumers’ backs. But a recent study shows that these claims tell only one side of the story. As a matter of fact, bad credit loans offer instant help when no other traditional loan is available.

On Bad credit loans and the Housing Market

The good news is, the Federal Reserve has promised to buy up approximately $40 billion worth of home loans each month. This is to encourage the betterment of the mortgage market’s health. The bad news is, obtaining a home loan remains to be quite a battle for borrowers that have low income, bad credit or no credit history at all. So to say that the boost from the Federal Reserve is selective in terms of reach is true.

But other than the large percentage of interested home buyers who can’t get their hands on loans, a good number of the buying market who have exceptional credit scores may still not want to borrow because of a bad borrowing experience.

A group of foreclosure lawyers from Florida expresses their frustration on the issue. The group says that with such a bad relationship between banks and consumers, it will become difficult to realize the Federal Reserve’s goals.

On Banks and Credit

There have been reports that say banks complicate home loan transactions by asking for too many paperwork and requiring about 60 to 90 days waiting time before an application can be given feedback. This will remain to be the case regardless of the credit score of the applicant. With such a lengthy and complex procedure, buyers are already discouraged to get home loans.

The nontraditional financing companies and the struggle for home loans is somehow given a better solution. With these nontraditional companies, bad credit loans are granted as there are fewer requirements needed. The application process is also shorter so more potential buyers can get approved faster.

There is no definite statistics on how much of these better lending alternatives are needed to date. What is known is that as of the moment, there are about 11 million homeowners who are late with their mortgage payments. Add to that, banks are still wary about taking on more debt.

More Promises

Aside from the promise of the Federal Reserve to gobble up approximately three out of four mortgages, they also intend to push down the interest rates and encourage more lenders to lend through incentives.

But these plans may have a hard time meeting with facts. Banks are in no mood to reduce the interest rate that they impose. Based on some reports, the gap between what the investors are paying and the interest rate banks consumer charge has grown big. This means that the banks may be profiting more on the transactions, and on the consumers’ accounts.

As for the very long waiting time for a home loan application to be reviewed, banks are not doing any concrete steps to cut it short. Apparently, the long waiting time is because of their reluctance to staff up in order to increase the number of people handling the loans.

The biggest roadblock, so far, is the fact that banks now have a set of stricter lending standards in place. The credit score is still there, but a lot of additions have been noted. For starters, you would have to have concrete evidence that you can pay a loan back before you can actually take one.

With all these in place, low-income borrowers would have little to no chance of getting bad credit loan applications approved.