Subprime lending (near-prime, non-prime, or second chance lending) is a financial term that was popularized by the media during the "credit crunch" of 2007 and involves financial institutions providing credit to borrowers who do not meet prime underwriting guidelines. Subprime borrowers have a heightened perceived risk of default, such as those who have a history of loan delinquency or default, those with a recorded bankruptcy, or those with limited debt experience.
Although there is no standardized definition, in the US subprime loans are usually classified as those where the borrower has a FICO score below 680. Subprime lending encompasses a variety of credit types, including mortgages, auto loans, and credit cards.
Subprime could also refer to a security for which a return above the "prime" rate is adhered, also known as C-paper. The term subprime often correlates with non-conforming loans, or those that do not meet Fannie Mae or Freddie Mac guidelines. Those guidelines may be the size of the loan, a high debt-to-income ratio or lack of income documentation provided.
The Wall Street Journal reported in 2006 that 61 percent of all borrowers receiving subprime loans had credit scores high enough to qualify for prime conventional loans.
Proponents of subprime lending maintain that the practice extends credit to people who would otherwise not have access to the credit market.
Download Full Project Report
0 comments:
Post a Comment