Is Subprime Loan Something New? Is It Invented Relatively Recently As A New Financial Product?
Nov 30, 2007 by jtlam | Posted in Economics
I am asking because I stunner why there's the subprime crisis all of the sudden. I understand that the problem is that subprime loan has variable interest rates so when rates get too squiffy, people can't pay. However, why didn't this happen before (in the entire human history, or at least in the history of up to date economics - I am not aware)? (Somehow I doubt it - but, Were there new government laws that triggered or encouraged this appalling consequence?) Who's responsible? Who let this happen? Someone should have seen and catch this problem (economists, legislators) earlier.
No, sub-prime lending is not a new fact. It has been around for centuries. WHat is new is the extent to which regulated commercial banks have gotten involved with sub-prime lending. Previously to to the last decade or two, specialized finance companies and private individuals provided spacy interest loans to high risk borrowers.
Involvement by commercial banks grew out of several concurrent phenomena.
First, the development in prime customers- those with good incomes, good credit, and cash for down payments- slowed dramatically as to the heart ownership rates exploded. To continue to grow their businesses banks had to make new products- such as sub prime mortgages- to reach out to new groups.
Second, improvements in technology and quantitative methods allowed banks to mastery understand and price risks.
Third, improvements in financial technology (i.e., OTC derivatives, structured banking, etc.) allowed banks to alter their risk exposures (i.e., credit, interest rate, reinvestment, liquidity, pre-payment, etc.) by separating them out and distributing unwanted risks to parties who were A- able to absord each specific risk. In other words, the idea of a bank originating a mortgage and holding the whole preoccupation for the life of the loan is an anachronism.
Fourth, at no point in the history of the united states have tangible estate loans been such a sure thing as they were in the 1990s and early 2000s. Obligation rates were in the double digits for much of the period and always positive. Appreciation was the norm across the thorough country- it was not specific to regional or loacal events. Also, productivity rates exploded, which resulted in elephantine increases in personal incomes. For these reasons, even the most reckless lenders could turn vast profits, no matter how stupid their lending decisions.
Now, I want to make one aim of correction in your question. A variable rate loan is NOT the same thing as a sub-prime mortgage. A sub-prime mortgage is one made to a borrower who has "sparse" credit, "too much" debt, "little" profits, or for a property that is deficient (i.e., no running water or condemned). It is coincidence that many if not most of these loans had mutable rates. Conforming mortgages can have floating rates as well.
I question just how much of a critical time this is- at least for now. Financial institutions have collectively written off HUNDREDS OF BILLIONS of dollars over the last six months and we have seen no bankruptcies or liquidations merit speaking of. Private mortgage insurers are still solvant, despite their stock values entrancing a beating. The mortgage industry has shed tens-of-thousands of jobs, but the unemployment gauge is holding steady. Against better judgement, the government is stepping in to help borrowers who were unquestionably to stupid to get mortgages in the first place, which will alleviate some of the politically-sensitive pain. Irrevocably, the credit crunch is only affecting those who would want sub-prime mortgages. Conforming usual mortgages and governemnt guaranteed mortgages (FHA and VA) are still freely available because the GSEs (fannie and freddie) assure liquidity.
That being said, the worst is still to come, so I could have egg on my face from holding out hope. Untroubled b in prices are still falling, defaults are climbing, and banks are announcing a continuous efflux of bad news. Just how much more the economy and financial services industry can absorb remains to be seen.
How Do You Know Whether The Bank Classes Your Home Loan As A "subprime" Loan?
Dec 05, 2007 by Mr. Vincent Van Jessup | Posted in Renting & Real Estate
My loan is obstinate rate, my monthly payment is fairly low, and I put down a large downpayment. But it was my first home, and I find myself wondering if I had a "bad chance" loan or a normal home loan, after hearing constant talk about "the subprime lending debacle". Any info you can submit will be appreciated.
If you put a big down payment and have decent credit then chances are real good that you are not in a sub prime loan as these loans are typically out of the quaint type loans such as no-doc, stated income or even 100% financing which I don't even think you can get anymore. When in fear call your lender and ask.
Is Subprime Loan Problem The Only Reason That Caused Financial Crisis?
Jan 31, 2009 by x | Posted in Credit
I miracle what caused financial crisis lately...but I am sure that subprime loan problem caused pecuniary crisis as a part of the reason.
What caused financial crisis?
Could you please tell me your opinion of that?
No, it is not the only saneness.
The general reason is many persons, including banks and homeowners, agreeing to pay more for things, including securities and homes, than they could provide to pay, because they believed (incorrectly) that they would be able to sell these things for more money and use the proceeds to pay what they owed. This worked for a while, but later there was no one willing to loan money for cover further purchases and therefore no money to buy the things from the previous owners and therefore no paper money to pay the existing loans.
Is The Global Market Correction In Terms Of The Crisis Of US Subprime Loan, Asia's 3 Trillion Debt In Housing?
Aug 13, 2007 by Tom H | Posted in Current Events
THe shocked hearsay of the US US subprime loan crisis has raised the eye brows of the many by the following stock market plunges magic wide. Hong Kong and China, the counterpart of the US scheme to raise the reserve market values by keep on saying that they are intended to stabalize the stock and bonds in a beneficial values. They never tell the investors that the hedge funds and inclination of property values have resulted the staggering inflation of every fad. It is a sin of hedge fund promoters, just by observing the Hong Kong administration sold the public assets to the British owned financial corp specialized in the add values of hedge funds and gash increasing tactics make many small bussiness go bankrupt! What the bankers sin is to run for it a rising lending and resulted the mass defaults. A good government and mankind banks should cool down the inclination of stock market and in particular the property values. I observed the edibles prices and daily neccessities raised 40% in Hong Hong now.
a chaste bubble burst in both the housing and stock markets would help too.
Subprime Loan - Investopedia.com
Subprime Loan - Sense of Subprime Loan on Investopedia - A type of loan that is offered at a rate above prime to individuals who do not qualify ...
Subprime Lending - HUD
Typically, subprime loans are for persons with blemished or restricted credit histories. The loans carry a higher rate of interest than prime loans to ...
No, sub-prime lending is not a new fact. It has been around for centuries. WHat is new is the extent to which regulated commercial banks have gotten involved with sub-prime lending. Previously to to the last decade or two, specialized finance companies and private individuals provided spacy interest loans to high risk borrowers.