2 Replies to “what is this sub prime business is US?”

  1. Sub-prime refers to riskier loans, usually mortgages. Typically when a lender wants to give you a loan they will look at your credit score, work history, equity in the house, money in the bank, your money you make compared to what you owe, called the debt-to-income ratio. Well a lender has a choice they can be less strict or more strict on what they require. The more strict the less loans they make, lenders make money from making loans. The less strict, they make more loans, but they are more likely not to get paid on the loan, and will have to foreclose. When real estate prices do poorly, more loans go bad, and the more risky lenders lose a lot of money and go bankrupt. Risky loans=sub-prime.

  2. Many unscrupulous lenders gave mortgages to people who couldn’t really afford them. They were at high interest rates, and very often ARM’s (ajustable rate mortgates) where interest rates would go up substantially after a couple years initial period. When the interest rates increased and the people couldn’t pay the higher payments, their homes were taken by foreclosure. And this has made houses tougher to sell since there are so many on the market due to foreclosures.

    An ethical lender will only give a mortgage to someone who shows that they’ll probably be able to pay it. Things can happen, of course, like illness or layoffs, that change that ability, but lenders normally at least verify that if no disaster hits the person, they’ll be able to make their house payments.

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