Best Answer: Subprime Lending and Subprime Lenders
Subprime lending is best defined as the act of offering financing to a borrower with blemished credit, low income, or limited documentation, who generally wouldn’t qualify for a mortgage at standard market interest rates. If a borrower fails to meet the requirements of the premiere banks and lending institutions, they must resort to using a subprime lender who in turn will offer higher interest rates.
As a general rule, a borrower with a Fico score of 620 or below would fall into the subprime category, also known as “B paper” or “near-prime”. If a consumer has a Fico score below 620, there is a good chance they have major derogatory accounts in their credit profile, or possibly overextended credit. Typically a 620 score doesn’t just happen, and is usually the
result of a collection, charge-off, bankruptcy, or another serious delinquency.
Subprime offerings include programs geared towards borrowers with low income and a high debt-to-income ratio that can’t qualify with traditional lenders, along with high loan-to-values and aggressive lending practices traditional banks find too risky.
Many subprime critics also consider interest-only loans, negative-amortization loans, and generally any non-fixed mortgage to be subprime, although that view is somewhat extreme and more opinion than fact.
So how did the subprime lending industry get its start? As interest rates dropped and mortgage became wildly popular, many potential homeowners sought financing but were turned away from traditional banks and lenders. This created a new, extremely large demographic that was without financing. Enter opportunity.(Yeah, right. Opportunity to wreck the whole economy)
saeed q · 8 years ago