subprime loan

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Subprime Loan

A loan that is made at a higher interest rate than most other loans. Subprime loans are made to borrowers who do not qualify for ordinary loans because of bad credit history or some other reason. There is a higher risk of default on subprime loans. Their prevalence was a significant factor in the 2008 credit crunch. See also: Subprime Mortgage.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

Subprime loan.

Lenders may make subprime loans to borrowers who would not ordinarily qualify for credit if customary underwriting standards were applied. To offset the increased risk that these borrowers might default, lenders charge higher interest rates than they offer to creditworthy borrowers and assess additional fees.

While subprime rates vary from lender to lender, the Federal Reserve defines a subprime loan as one that carries an interest rate at least three percentage points higher than the rate on a US Treasury bond that has the same term as the loan.

Subprime loans may provide credit to responsible people who may not have a strong credit history. However, subprime lending practices can be abusive or predatory, trapping unsophisticated borrowers in a cycle of debt while providing initially large profits for the lender.

Lenders with large portfolios of these loans are vulnerable to major losses in market downturns.

Subprime loans can be securitized and sold to investors as pass-through securities or in more complex packages such as collateralized debt obligations (CDOs). Individual and institutional buyers purchase these products for the promise of higher than average returns despite the greater risk of default.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.

subprime loan

A loan at higher interest rates because the borrower does not qualify,for credit or income reasons,for the best rates.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
References in periodicals archive ?
This is eerily similar to the sub-prime loan market in 2005, where loan originators with no skin in the game were pushing loans to borrowers who figured that prices could only go up.
WB's net profit in 2008 and 2009 was impacted by significantly higher provision charges for collateralised debt obligation (CDOs) linked to the US sub-prime loan market and the loan portfolio.
When the sub-prime loan issue hit, the government saw what was coming and immediately the TARP monies were approved to lend to banks.
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In denying that the information is of public concern, the official pretty much defined what a newsletter audience is: "highly specialized." And even beyond the mortgage officers who subscribe to Guy Cecala's publications, the current "sub-prime loan" crisis seem to make the information of great public concern.
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He said that although Bush and Bernanke's remarks helped ease market anxiety over the sub-prime loan crisis it failed to fully assuage everyone.