subprime essay

Submitted By nicholasparrotta

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Parrotta1

Nick Parrotta
Tucker
ECO2013
10/28/14
Prime interest rates are what banks usually charge their customers that have the highest credit score. People who borrow money with poor credit are usually charged with subprime interest rates. This type of rate is always above the low interest prime rate, and depending on how low the score is, the rate could be two or three times that of the prime. The reasoning why subprime lenders charge higher interest rates is because it puts less of a risk on losing money based on the past of the person receiving the loan. The subprime mortgage makes it easier for people to own homes. Even with low credit scores, subprime mortgages made it possible for people with lower scores and sometimes with several other red flags, to get mortgages. That being said, as indicated, many of the people receiving the loans do not pay the loans back. The credit system is the best measure to see if someone is a qualified buyer or not. The loans people were receiving when the housing market crashed in 2007 did not require them to pay with barely any of their own money in the transactions. The collapse of the subprime mortgage market set a reaction of failure in financial markets, threw the US into a recession and turned the housing market into a terrible downfall. During this time people were living way beyond their needs when they had low to moderate incomes, bad credit scores, or just a small amount of money. By
2007, nearly 10% of all subprime loans ended in foreclosure. The

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