The Sub-prime Mortgage Market and Variable Rate Mortgage Market in the Essay

The Sub-prime Mortgage Market and Variable Rate Mortgage Market in the USA - Essay ExampleThe subprime mortgage market place can be considered as an extension of this lending practice prevalent in the housing market. Subprime mortgage gives motorcarry interest rates ofttimes higher(prenominal) than the prime loans in order to cover the additional risk exposure of the lenders in extending realisation to the borrowers who are considered to have a bad loan run and defaulters in repayments. With the increase in the subprime lending the rate of failures has too considerably increased, as most of the loans have been granted to those who did not have the fit federal agency to repay the loans. When such failures have reached a greater proportion, Investors have started scrutinizing subprime loans more carefully and, in turn, lenders have tightened underwriting standard.Certain other measures including denotation spreads over subprime securitizations have also been undertaken to con trol the rate of delinquencies. Different aspects of the subprime mortgage including the variable rate mortgage are discussed in the following sections of the report. The report also details the process of securitization being adopted by the mortgage originators to fund the growth in their mortgage lending. 2.0 What is Subprime MortgageAlthough the term subprime mortgage is used to indicate the loans offered to those borrowers whose credibility is doubtful, the term subprime does not signify the character of the loan itself but characterizes the borrower meaning the borrower has a substandard credit status. Lack of good credit history and familiar defaults in repayments make the borrowers to get into the status of sub prime borrowers. Subprime lending can take a variety of instruments like... As the report declares the subprime mortgage market can be considered as an extension of this lending practice prevalent in the housing market. Subprime mortgage loans carry interest rates mu ch higher than the prime loans in order to cover the additional risk exposure of the lenders in extending credit to the borrowers who are considered to have a bad loan track and defaulters in repayments. With the increase in the subprime lending the rate of failures has also considerably increased, as most of the loans have been granted to those who did not have the adequate means to repay the loans. When such failures have reached a greater proportion, Investors have started scrutinizing subprime loans more carefully and, in turn, lenders have tightened underwriting standard.This paper stresses that lack of good credit history and habitual defaults in repayments make the borrowers to get into the status of sub prime borrowers. Subprime lending can take a variety of instruments like subprime mortgages, car loans and credit cards. The expansion in the sub-prime mortgage has made the home-ownership possible for those borrowers who otherwise would not be able to qualify for any borrowi ng. There has been a piercing increase in the subprime mortgage in the recent years. With the increase in the subprime mortgage market, the concerns over the adverse effects of the predatory loans have also increased.