Comments on: What is Subprime Mortgage Lending? http://www.bullishindian.com/what-is-subprime-mortgage-lending/476/ Mon, 03 May 2010 09:29:45 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Bullish Indian http://www.bullishindian.com/what-is-subprime-mortgage-lending/476/comment-page-1/#comment-3533 Bullish Indian Mon, 13 Aug 2007 06:08:54 +0000 http://www.bullishindian.com/what-is-subprime-mortgage-lending/476/#comment-3533 @Abhinav - Hi Abhinav, thanks for your informative insights @Abhinav – Hi Abhinav, thanks for your informative insights

]]> By: Abhinav http://www.bullishindian.com/what-is-subprime-mortgage-lending/476/comment-page-1/#comment-3492 Abhinav Sun, 12 Aug 2007 18:46:22 +0000 http://www.bullishindian.com/what-is-subprime-mortgage-lending/476/#comment-3492 To add to your post, In the US the lenders started what is called "Predatory lending" practices to the sub prime borrowers, new exotic varieties of mortgage products like Option ARMs were cooked by these lenders. To illustrate in one variety of these mortgage products the lender would offer a introductory 1% interest to the borrower in the first year of the loan, or for the first year the borrower would have to pay only the interest part of the mortgage that too only partially, as a result unsophisticated sub prime borrowers made costly mistakes and took decisions to take mortgage loans they could have never afforded, after the initial year or so when the loan installment started going up sharply (2,3,4 times in many cases) the borrowers started defaulting on the loans, and hence this whole mess. In the US the mortgage lenders sell their mortgages as securities on wall street and US being the financial superpower financial institutions from across the world puts money in it. Nobody realized that the assets behind those mortgage backed securities were such risky mortgages and this is how the whole chaos spread across the world. Even now we don't know exactly which banks and FIs are affected. To add to your post, In the US the lenders started what is called “Predatory lending” practices to the sub prime borrowers, new exotic varieties of mortgage products like Option ARMs were cooked by these lenders. To illustrate in one variety of these mortgage products the lender would offer a introductory 1% interest to the borrower in the first year of the loan, or for the first year the borrower would have to pay only the interest part of the mortgage that too only partially, as a result unsophisticated sub prime borrowers made costly mistakes and took decisions to take mortgage loans they could have never afforded, after the initial year or so when the loan installment started going up sharply (2,3,4 times in many cases) the borrowers started defaulting on the loans, and hence this whole mess.

In the US the mortgage lenders sell their mortgages as securities on wall street and US being the financial superpower financial institutions from across the world puts money in it. Nobody realized that the assets behind those mortgage backed securities were such risky mortgages and this is how the whole chaos spread across the world. Even now we don’t know exactly which banks and FIs are affected.

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