As usual, there is a difference of opinion. Subprime lenders are frequently special purpose companies set up for the express purpose of making mortgage loans to people with credit scores which are too low to qualify for an ordinary mortgage. Such subprime lenders charge higher interest rates and fees to lenders who use them and hope that the higher default rate that necessarily comes with higher risk lending is more than overcome by the higher rates and fees. Like most financial institutions, these companies are very heavily leveraged and rely on the capital markets for additional financing to assure growth. In the past few weeks, as the default rates for some of these firms have become uncomfortably high, the equity markets have killed their stocks and lenders have stopped making loans. As a result, several of these subprime lenders will probably seek bankruptcy protection.

The ability of subprime borrowers to obtain mortgage financing is now effectively zero. This will disproportionately affect lower income areas in the US and first time home buyers. If this is going to have an impact on Maui, it will likely be felt in areas like Kihie and Honokawai far more than in areas like Wailea or Kapalua. We will, as always, keep you apprised.

For more information, contact us!