The lending practices of subprime financial institutions totally changed America as we know it. Mortgage lending practices will never be the same after this financial crisis.
Prior to 2007 very little thought went into the idea or logic behind subprime lending. The financial institutions that were funding these loans were making money hand over fist in fees and rates on the loans. What they did not realize is that many of these risky borrowers were extremely likely to default if the economy turned south. The idea of lending $300,000 to someone who makes $45,000 makes absolutely no sense. How can anyone pay for a $2200 mortgage payment when they only make $2500 a month after taxes? Is $300 a month going to cover ever other expense? Of course not! So these borrowers took refuge in credit cards and now we are in a credit crisis.
Looking back on the beginnings of the financial crisis, it seems quite obvious that we can blame subprime lending on the first leg down of the financial disaster. For years lenders were giving loans to people who could not pay them off. The lending practices were very lenient to say the least. If you have a beating heart and a signature, you could sign for almost any loan under $300,000 no matter what your annual salary was. There were some people who were getting mortgages who did not even have an annual salary!
Does anyone else see a problem with this? When you give someone large amounts of money or responsibility when they have never been exposed to it, they are likely to fail. Let these individuals fail with a $2000 credit card, not a $300,000 home. Hopefully the subprime lenders have learned their lesson and we can put the financial crisis in the past.
Subprime lending is a financial practice that started the current financial crisis. The best way to avoid these disaster is to educate yourself on financial issues. Prior to 2007, if you took out a subprime mortgage, it is likely that you are struggling financially. Let Subprime Blogger be your mortgage blog and help you learn more about the mortgage industry.
