Subprime lending

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Subprime lending

Lending to individuals who have a bad credit history or relatively low income. A higher interest rate is charged for such loans because risk to the lender is higher. Excessive subprime lending is often pointed to as one of the major causes of the financial crisis of 2008-2009.
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The apex bank has raised a warning on the rapid growth in lending to indebted companies around the world and said that the trend is similar to sub-prime lending that triggered the 2008 financial crisis.
It shows that sub-prime lending is just one percentage point lower than it was in 2008 at the start of the auto industry crisis even as the average prime-lending credit score is almost back to 2008 levels.
The Bradford-based group, which specialises in sub-prime lending, said business picked up as consumer confidence returned after details of the Government's spending review - a trend that has continued into 2011.
Following the problems in the sub-prime lending market in America and the run on Northern Rock in the UK, uncertainty has now hit Japan.
The banking group has been one of the worst-hit by the global sub-prime lending crisis, suffering a series of multi-billion dollar write downs on risky investments.
It beat forecasts in the wake of the sub-prime lending crisis but was well down on last year's 2.2per cent rise.
FSA chairman Sir Callum McCarthy insisted that the regulator had managed to head off many potential dangers from the US sub-prime lending crisis.
"The culmination of high interest rates, high property prices and the continuing financial concerns over sub-prime lending has had a serious effect on the market.
The insanity of the sub-prime lending spree must have reached its peak when a California mortgage broker persuaded a seventy-year-old woman to take a mortgage requiring payment of $2,200 a month, when her income was less than half of that.
Sub-prime lending hit the headlines earlier this year when a number of major lenders in the United States, including HSBC, were forced to up their bad debt provisions as borrowers struggled with repayments.
That adjustment - downward - has been fueled of late by the collapse in the sub-prime lending sector, and some economists predict that other sectors will soon follow.
Popular Inc., owner of Puerto Rico's biggest bank, will close its sub-prime lending unit, a move that will cost the company US$39 million in charges and about 627 people their jobs, reports Bloomberg News (Jan.