Subprime lending
Subprime market called the one hand, a part of the private (ie not for commercial purposes serving ) mortgage market in which borrowers with poor credit histories usually at U.S. banks mortgage recordings for house purchase and were persuaded of them to do so. Secondly, it means the market are traded on the securitized packages of such mortgage loans - often between banks and internationally.
Translated, subprime 'second class'; The term is from 1993, first in the U.S. and later also in other English-speaking countries.
In the creditworthiness estimate next -personal aspects, real estate-related criteria, with with. As an important figure applies the debt-to -income ratio, ie the ratio between the gross income of a debtor and the total debt service. You should not exceed 45% of gross income; in other words, 55 % of gross income should be left to the debtor after paying his monthly installment at least. The equity ratio ( loan-to - value ratio ) should be at least 10%. All factors are combined into a rating (or credit score). It should reach at least 620 points on a scale from 300 to 850. Loan with a credit score below 620 is called ' subprime loan '.
The extreme increase in the granting of such risky real estate financing has since 2006 led the U.S. banks to large parts of such credit claims - to bundle into securities similar, easily transferable so-called CDOs ( Collateralized Debt Obligations ) or similar structured financing and - sometimes combined with prime -loans, finished with an attractive external ratings agencies, to European or Asian banks to sell. Thus, a hitherto purely American risk was internationalized.
The subprime realized so long not like the borrowers concerned served their subprime loans contracted. As lending rates rose and other credit-related factors deteriorated (income ), thereby fell quantified in credit rating. Many borrowers eventually fell into arrears, and the subsequent foreclosure sale brought the banks losses one, because the trend of rising property prices and constantly ended in many places the real estate bubble ' burst '.
The term is often mistakenly understood as the expression of non -conforming ( mortgage ) market subprime market. In the U.S. and the UK, these two markets are, however, clearly distinguished. Borrowers with poor credit histories, who use their mortgage contract, fall into the subprime segment. Mortgage loans, which do not comply with the market standards especially in the area LTV (loan - to-value ratio) term or loan amount, fall into the non -conforming segment.
The Federal Housing Finance Agency is the body responsible for regulating U.S. regulatory authority. She reported in 2010 that fines have been imposed on 64 issuers of securitisations.