sub prime mortgages

Sub Prime Mortgages

explained

A lot has been written about the sub prime mortgage market over the last year or so. A Sub prime mortgage is simply a loan that is given to a borrower with a very poor credit history or very low income. These are the most expensive loans to take out, with very high interest rates. This reflects the fact that lenders require a higher return as there is a greater risk that the borrower will default and be unable to make their monthly payments.

No other area of lending has proved so controversial in recent months. Opponents say that these types of loans are sold too often to people who really can't afford them. They argue the loans are irresponsible and that by definition charging the poorest borrowers the highest interest rates is not only wrong but does nothing to help the borrowers financial position, in fact it usually makes it worse.

On the other hand, others argue that these mortgages offer many people the chance of home ownership who under more traditional lending criteria would be unable to get a mortgage. It is true that people get into credit problems for many reasons, often outside of their control, and many are able to turn their financial situation around and resolve their problems. This is the main reason why lenders and proponents argue that these loans serve a valid purpose.

There is no clear definition of a sub prime loan, and obviously lenders do not advertise such mortgages as sub prime One other common term used to describe such product is "Ninja Loans". This term describes the target market of lenders offering such loans; No Income, No Job, no Assets. This lack of clear definition has led huge amounts of these mortgages t be sold, particularly in the US. Some market commentators have suggested that over 20% of all mortgages written between 2004 and 2006 fell into the sub prime category.

This type of mortgage hit the headlines in a major way in the second half of 2007. As economic conditions in the United States worsened, property prices began to fall quickly. The number of people unable to meet their repayments increased and many defaulted on their mortgages, forcing lenders to repossess their homes. As a result of the falling house prices many of the repossessed properties were now worth less than the outstanding loans used to by them. This has lead to many mortgage lenders suffering large losses, which in turn has contributed to the poorly performing economy.