Recent subprime mortgage applicants could find themselves in an unfortunate situation, especially if their mortgage broker or wholesaler used Mortgage Lenders Network USA, MLN, to fund the home loan.
MLN is known for providing loans to homebuyers that have less than perfect credit, who are also known as subprime borrowers. Since it can be difficult for these subprime borrowers to find loans elsewhere, through MLN, many have been able to purchase homes when they otherwise would not have been able due to the difficulty in obtaining funding. MLN has recently decided to stop funding these more risky loans.
Both mortgage brokers and homebuyers alike feel the sting from the decline in the subprime industry. Ultimately, it is the homebuyers who have lower credit who will suffer the most. With several billions of dollars in home mortgages being withdrawn from the industry, many homebuyers will be forced to seek other lending, and quite possibly housing, options. Because of their credit standing, some borrowers might not have the opportunity to purchase a new home, at least until their credit has improved.
There is a hint of good news. While MLN previously announced that closed loans would not be funding, it has been confirmed that Lehman Brothers Holdings Inc. will proceed to finance those loans that had already been closed. New mortgage loans for subprime borrowers will not be available through MLN.
Housing sales have been sluggish over the past few months, bringing in fewer applications for MLN and other mortgage lenders. Besides that MLN has seen an increase in the number of borrowers that default on their mortgages.
Without an increase in loans to offset the cost of collecting from defaulted borrowers, it seems that MLN has deemed it more profitable to pull out of the subprime lending industry. The company isn’t the first to stop funding low credit mortgages. Two other lenders, Capital Partners LP and Ownit Mortgage Solutions Inc, have also shut down their operations.
Problems for MLN began late last year when several millions of dollars in loans had to be sold at a loss because they had been provided to borrowers at arate lower than that of the market. Shortly after, issues in the subprime industry began making it harder to attract investors. This, of course, made it difficult for MLN to obtain funds to provide mortgages.
If mortgage lending wasn’t hard enough already for subprime borrowers, MLN’s pulling out of the industry will only make it more difficult for them to purchase a new home. There is even talk that GM could be hurt $1 Million from the bad credit loan fallout.
If you have a lower than average credit score we recommend you shop for a loan now before the bad credit fallout gets worse and you still have a chance to get qualified for mortgage.
Mortgage Lenders Network is not the only lender to have a problem this year. Fremont General had its sub-prime lending unit shut down by the FDIC. New Century has also stopped taking loan applications.