Subprime mortgage lending
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Sub-prime mortgage lending involves lending to borrowers who do not qualify for loans from mainstream lenders. Some sub-prime lenders are independent, but increasingly they are affiliates of mainstream lenders operating under different names. In U.S. mortgage lending, the term refers to loans that do not meet Fannie Mae or Freddie Mac guidelines for a number of reasons, including the borrower's credit rating, income and job history. It can also refer to bank loans taken on property that cannot be sold on the primary market.
Cost factor
Rates and fees for sub-prime lenders are higher than mainstream lenders because of the greater risk and higher costs of sub-prime lending - the latter because more applications are rejected and marketing costs are higher.[1] Default rates on oversold subprime mortgages were the catalyst that sparked 2007's meltdown in the mortgage-backed securities market and later the 2007-2008 credit crisis.
References
- ↑ "What is a Sub-Prime Mortgage Lender?". mtgprofessor.com. Retrieved on September 15, 2008.
