There are many names for the term subprime lending. It is also called as the near prime lending, non prime lending and second chance lending. In principle the sub prime lending refers to making loans to the people who are having any difficulty in maintaining the schedule of repayment of the loan. This is sometimes very disturbing on part of the borrowers when they do not find any way of paying off their loans.
Significance of subprime lending
This situation may also give rise to certain setbacks sometimes. Sometimes the people may also suffer certain situations like unemployment or family breakups like divorce or certain medical emergencies. Therefore financial institutions have come up with certain lending services like the subprime lending which can be really helpful for such individuals. Although these loans have quite high interest rates, yet these are very helpful especially at the time of setbacks. Sometimes the terms are also not favorable for the borrower.
Package of subprime lending
Initially the packaging of the subprime lending was introduced into the mortgaged backed lending securities. These lending securities have been found defaulted most of the times. This has ultimately led to the financial crisis of the fiscal years 2007 and 2008. In spite of the losses faced by the sufferers of the subprime lending, it has still been proposed by many supporters of the subprime lending packages that this practice is still useful in extending credit to those people who have no other chance of approaching to the open credit market for the purpose of investment.
Credit quality of subprime lendingThere are several innovations introduced by the mortgage market especially in case of the subprime lending matters. The most important thing in this regarded which is done by the mortgage markets is that it has let in many excluded persons of the investment markets like the young investors and people, the discriminated people and the people who have specifically no or very less money in banks for investment. This investment has helped many people in making down payments in bank to get the investments paid. As a result a massive economic activity has been introduced.
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