US Economy: The Second Wave of Mortgage Defaults
Do you remember the massive wave of Subprime mortgage defaults in the year 2007 and 2008? Now, first of all let us understand What is Prime Lending & What is Subprime Lending? Well, Prime Lending means the borrower fulfills all the criterias of borrowing money.
While Subprime lending (near-prime, non-prime, or second-chance lending) in finance means making loans that are in the riskiest category of consumer loans and are typically sold in a separate market from prime loans.
See in the above diagrams that, How Subprime Mortgages in the USA, started defaulting severely in the year 2007 & 2008. Right now we are in 2010. And today the Federal Interest rates are ground zero. But when the Federal Government will start raising the mortgage rates (Interest), we will again see the second wave of Mortgage Defaults.
This is because the Americans have adopted so much hyper consumer life style since decades that, even a slight rise in interest rates is enough to make them defaults in their loan payments.
The Subprime mortgage practice is totally a wrong practice according to me. Any Logical mind will never understand that why to give a mortgage loan to those consumers which the lender already know that the chances of defaulting this borrower are very high?
I still really don’t understand that, Why there is a Category like Sub Prime Lending? Ideally there should be only one category & that’s Prime Lending. Just don’t give mortgage loans who are not fit financially to afford it.
What do you think about my this View?
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