| Over the last five years the number of "B"
lenders has increased fifty fold. Who can say why
this amazing mini sub-industry has mushroomed so
rapidly. Was it in response to demand, or
did the powerful marketing approach of the "B"
lenders create it's own demand?
In the 1980s Michael Milken pioneered the
"junk bond" frontier. He quickly discovered that
struggling businesses were more than happy to pay
a premium interest rate if it meant getting easy
money. What made that money "easy" of course had
nothing to do with Mr. Milken. It was about
the powerful desire of the marketplace (made up of
us) to get a higher rate of return on our money.
In other words, Milken merely facilitated the
match between investor desire (private and
institutional) for a high return, and low rated
business' insatiable appetite for
money.
The "sub-prime" mortgage industry, not
unlike the "junk bond" industry of the '80s
has facilitated a virtually identical marriage.
The borrowers this time are not "low rated"
businesses, but individuals with "less than
perfect credit" or otherwise impaired borrowing
credentials. This comparison is not
prediction of a future massive default. After all,
people make the payment on their primary home a
priority. Also, most of the sub-prime loans of the
last 5 years are intended to be paid off/
refinanced as soon as the borrowers manage to
repair their credit. The drawback of this approach
is the cost to refinance when the time comes to do
so.
The entry of FNMA into this market goes a
long way to eliminate the downside of being a "B"
borrower. For a start, interest rates are
surprisingly low (compared with a traditional "B"
product) and are set directly by FNMA via our
on-line FNMA connection. Rates range between .50%
over "A" pricing and 1.50% over "A" pricing
depending on all of the relative factors. In
addition, all of these loans in the highest rate
category are eligible for FNMA's "timely payment
rewards" program. This option provides borrowers a
single full percent automatic rate reduction at
the end of 24 months based on timely payment
histories. If you didn't make the cut after the
first 24 months the clock starts again; make your
payments on time (no 30 day lates) for 24 months
and your rate will be reduced by 1%.
Unlike many traditional "B" loans these new
FNMA products are all fixed rate programs. They
have no balloons and no prepayment penalties
either. | 
