we do not give risky loans to people unless they feel completely comfortable with their payment. We make sure of that before we close the loan. If it's a financial burden on them, it's not a good loan and we won't do it. Now with most fully documented loans, high risk loans (high payment compared to the income) aren't allowed because the underwriters evaluate the willingness to repay by calculating the borrower's debt ratio. If the d/r is too high, the borrower is denied, and there is no loan. With stated income programs, you have to have a higher credit score. This is because it shows the borrower is capable of properly managing their debts, and they can determine if they are able to make the payments.
Now with your little statement about a fixed-rate
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, that's totally wrong. Fixed rates are normally given to conforming borrowers, while adjustables are given to sub-prime borrowers (this is because conforming companies have much lower rates, and you can therefore afford to give fixed rate loans). Basically you're saying that if a borrower doesn't have the credit to go conforming, they shouldn't be allowed to buy a house. You're then punishing them because they made a few mistakes on their credit. ARM loans are basically bandaid loans to allow sub-prime borrowers to purchase a house. You then give them about a year or two to repair their credit, and at that time you refinance them into a much better loan (normally a FHA loan). This allows them to purchase the house they have their heart set on (or purchase their rent-to-own house).
did you know that making a payment 30 days late will drop your credit score around 30 points? most people don't, so they say "it's ok if we skip a credit card payment". They don't realize that affects their credit that much until they try to buy a home and find their credit scores in the mid 500's. These are the situations those ARM loans are for. You can't say they're not ready to be a homeowner just because they have low credit scores...
