Subprime lending (also known as B-paper, near-prime, or second chance lending) is lending at a higher rate than the prime rate. In the US, the term "subprime" in mortgage lending, refers to loans that do not meet Fannie Mae or Freddie Mac guidelines. While often defined or defended as lending to borrowers with compromised credit histories, the Wall Street Journal reported in 2006, 61% of all borrowers receiving subprime loans had credit scores high enough to qualify for prime conventional loans.[1] It may or may not reflect credit status of the borrower as being less than ideal and may not even reflect the interest rate on the loan itself. The phrase also refers to bank loans taken on property that cannot be sold on the primary market, including loans on certain types of investment properties and to certain types of self-employed persons.
http://en.wikipedia.org/wiki/Subprime_lending
Thursday, May 8, 2008
Sunday, May 4, 2008
What is subprime mortgage lending?
Subprime mortgage lending differs from standard or prime mortgage lending because it is specifically designed for people who have adverse credit, or a bad credit history. Subprime mortgage lending products provide an opportunity for people who would be turned down by the traditional mortgage market to fund a house purchase, giving them the chance to get on the property ladder.
http://www.adverse-mortgage-centre.co.uk/subprime-mortgage-lending.html
http://www.adverse-mortgage-centre.co.uk/subprime-mortgage-lending.html
Friday, May 2, 2008
Subprime Lenders Seen As Tough
Times are tough for companies involved in the subprime mortgage market industry, and it looks like it could get a lot tougher.
Goldman Sachs analyst Lori Appelbaum described the subprime mortgage credit outlook as "bleak" in a recent client note.
"The outlook for subprime mortgage credit quality remains extremely challenging," Appelbaum wrote. "This reflects very poor underwriting in late 2006 with the subprime mortgage market now hitting peak levels of early payment defaults and delinquencies in 2007 with peak losses to follow."
Companies involved in the subprime mortgage market make loans to those with underwhelming credit histories. But the number of Americans now defaulting on their mortgages is climbing as home values sag and interest rates rise. (See: "Subprime Lenders Face Challenging Market." )
http://www.forbes.com/markets/2007/02/13/subprime-update-lender-markets-equity-cx_jl_0213markets32.html
Goldman Sachs analyst Lori Appelbaum described the subprime mortgage credit outlook as "bleak" in a recent client note.
"The outlook for subprime mortgage credit quality remains extremely challenging," Appelbaum wrote. "This reflects very poor underwriting in late 2006 with the subprime mortgage market now hitting peak levels of early payment defaults and delinquencies in 2007 with peak losses to follow."
Companies involved in the subprime mortgage market make loans to those with underwhelming credit histories. But the number of Americans now defaulting on their mortgages is climbing as home values sag and interest rates rise. (See: "Subprime Lenders Face Challenging Market." )
http://www.forbes.com/markets/2007/02/13/subprime-update-lender-markets-equity-cx_jl_0213markets32.html
Thursday, May 1, 2008
The Sub-Prime Lending and Borrowing Disaster..and the Broader Risks to the Financial System
Last August when I started to predict a 2007 recession triggered by a housing bust I argued that this housing bust would soon also lead to serious risks and distress in the financial system. I pointed out that such stress and vulnerabilities would first be noticed in the subprime segment of the mortgage market - the canary in the coal mine as I put it – as many (but not all of) of the excesses of the last few years in mortgage finance were concentrated in this market. As I put it then:
“…not only we have had in the last few years a massive credit boom associated with the debt financing of the housing bubble; this lending boom has also been associated with an extreme loosening of credit standards that allowed the boom to continue and feed an ever more unsustainable housing bubble. Indeed, many mortgage lenders have gambled for redemption during the bubble years and engaged in extremely risky and reckless lending practices that may eventually lead to financial distress, or even their outright bankruptcy; we may be soon facing the same mess and systemic banking crisis that we had in the 1980s with the S&L crisis.
http://www.rgemonitor.com/blog/roubini/162056/
“…not only we have had in the last few years a massive credit boom associated with the debt financing of the housing bubble; this lending boom has also been associated with an extreme loosening of credit standards that allowed the boom to continue and feed an ever more unsustainable housing bubble. Indeed, many mortgage lenders have gambled for redemption during the bubble years and engaged in extremely risky and reckless lending practices that may eventually lead to financial distress, or even their outright bankruptcy; we may be soon facing the same mess and systemic banking crisis that we had in the 1980s with the S&L crisis.
http://www.rgemonitor.com/blog/roubini/162056/
Subprime Lender
A type of lender that specializes in lending to borrowers with a tainted or limited credit history. Subprime lending is more concentrated in a smaller number of large lenders than prime lending. The subprime loan market is more tiered compared to the prime loan market, where terms and rates vary little between borrowers.
Subprime lenders use a risk-based pricing system to calculate the terms of loans, including the interest rate, which they offer to borrowers with varying credit histories. The securities issued by subprime lenders tend to carry more credit risk but less interest rate risk than securities backed by prime loans. This is because subprime borrowers tend to have a shorter time horizon and fewer opportunities to refinance when interest rates fall.
http://www.investopedia.com/terms/s/subprimelender.asp
Subprime lenders use a risk-based pricing system to calculate the terms of loans, including the interest rate, which they offer to borrowers with varying credit histories. The securities issued by subprime lenders tend to carry more credit risk but less interest rate risk than securities backed by prime loans. This is because subprime borrowers tend to have a shorter time horizon and fewer opportunities to refinance when interest rates fall.
http://www.investopedia.com/terms/s/subprimelender.asp
What Is a Sub-Prime Mortgage Lender?
March 22, 2004, Revised August 1, 2006, February 26, 2007
"I hear terrible things about subprime mortgage lenders. What are they and how can I avoid them?"
Subprime Lenders Defined
A sub-prime lender is one who lends to borrowers who do not qualify for loans from mainstream lenders. Some are independent, but increasingly they are affiliates of mainstream lenders operating under different names.
Sub-prime lenders seldom if ever identify themselves as such. The only clear giveaway is their prices, which are uniformly higher than those quoted by mainstream lenders. You do want to avoid them if you can qualify for mainstream financing, and I’ll indicate how shortly.
There are lenders who offer both prime and sub-prime loans, and one of them is referred to below. For borrowers who aren't sure where they stand, dealing with a lender who offers both has a distinct advantage. They will try to qualify you for prime and only if that fails will they drop you to subprime. Lenders who are strictly subprime might refer a prime borrower to an affiliated prime lender, but their financial interest dictates otherwise.
http://www.mtgprofessor.com
"I hear terrible things about subprime mortgage lenders. What are they and how can I avoid them?"
Subprime Lenders Defined
A sub-prime lender is one who lends to borrowers who do not qualify for loans from mainstream lenders. Some are independent, but increasingly they are affiliates of mainstream lenders operating under different names.
Sub-prime lenders seldom if ever identify themselves as such. The only clear giveaway is their prices, which are uniformly higher than those quoted by mainstream lenders. You do want to avoid them if you can qualify for mainstream financing, and I’ll indicate how shortly.
There are lenders who offer both prime and sub-prime loans, and one of them is referred to below. For borrowers who aren't sure where they stand, dealing with a lender who offers both has a distinct advantage. They will try to qualify you for prime and only if that fails will they drop you to subprime. Lenders who are strictly subprime might refer a prime borrower to an affiliated prime lender, but their financial interest dictates otherwise.
http://www.mtgprofessor.com
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