Answers - Real Estate

Every day we in the mortgage business and everyone else are reading about all of the sub-prime lenders that are going out of business. It seems all the risky loans that they have been funding over the last several years are now starting

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

to default in a very big way. Now the bottom is falling out of the market and the biggest names in non prime lending are biting the dust.

This has huge implications for everyone, not just the mortgage banks. These collapses are alread

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

y starting to bring down the stock market which is bad news for all of us. What with property prices already in a free fall in many parts of the country, the added economic stress could result in outright recession.

Here is a big part

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

of the problem. Many of the sub-prime loans that were originated over the last few years were 100% financing loans or a combination of 80% first mortgage and 20% 2nd mortgage totaling 100% of the home’s value. These borrower’s were and

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

are “sub prime” borrowers meaning they are a credit risk. Generally, their FICO (credit report scores) Scores were low, job history shaky and they had very little if any money in the bank as a safety net should anything bad happen.

To

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

top it all off, many of the loans are stated income loans. A stated income loan is one where the borrower(s) state their occupation and their income on the mortgage application, but only their job is verified by the lender. Their incom

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

e is not verified in any way, no pay stubs, no W2s, no tax returns.

We in the business call these “liars loans”. Reason being that if a borrower couldn’t qualify for a home with his or her income, we would set them up with a stated inc

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

ome loan, state (lie) enough income for them to qualify, and hand them their keys to their brand new home. Sounds great right? Wrong.

A majority of the sub-prime loans originated were hybrid loans meaning that their interest rates were

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

only fixed for a short time, (mostly two years) after which the interest rate adjusts. Almost all of them see their interest rates rise by two full percentage points initially. This increases the mortgage payment substantially, often l

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

eaving the homeowner unable to make the payment.

When home prices were rising by double digits each year this wasn’t much of a problem. With the increased equity in the home, the homeowner was able to refinance the adjustable rate mort

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

gage back down to a lower rate where they could afford the payment. However, now that property values have either stalled or declined, there is no room to refinance. Unless the borrower has the money to pay the closing costs out of his

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

own pocket, he’s stuck. This is where the downfall begins.

So borrowers who really couldn’t afford the home to begin with are faced with tough choices like pay the mortgage or buy groceries or make the car payment. To add further damag

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

e many communities have increased property taxes over the last several years which further increased the housing payments. Ultimately, there is no choice but to not pay the mortgage. After all, you can’t get blood from a stone.

Suddenl

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

y the sub-prime mortgage industry is faced with unprecedented delinquency rates. Foreclosures are through the roof (pardon the pun) and many homeowners are out on the street. What we have is a perfect storm of economic doom. But does it

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

have to be this way?

Interest rates are still historically low. As I write this, a 30 year fixed rate mortgage is hovering right around 6%. So why are the companies who hold all the sub-prime mortgages insisting on raising the interes

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

t rates by 2% when the initial fixed rate period is over? Wouldn’t they be smarter if they re-negotiated the terms of these mortgages with the consumers and fix the rates right where they are?

Now, I don’t pretend to be a financial ana

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

lyst, only a mortgage broker, but this seems to make perfect sense to me. I think it would be smarter to put a bandage over the existing wounds before we bleed to death. The sub-prime lending community has already begun tightening their

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

guidelines. Most sub-prime lenders have already stopped funding loans over 90% Loan to Value and the day of the stated income loan may be over. This should prevent this from happening again in the future – I hope.

The fact of the matt

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

er is that something is going to have to be done. And someone is going to have to pay for this mess and we both know who that is. So before the entire banking and housing market implodes, let’s try to find some solutions where everyone

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

wins or at least not everyone loses -- that badly. For daily mortgage information, advice on how to save money on mortgages as well as WHOLESALE mortgage lending rates, you can visit my blog at http://www.themortgageswami.blogspot.com/

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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Malpractice has been in the news lately because of the rising costs in malpractice insurance for doctors. Some doctors have even had to close their practices due to this issue.

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