Talk:Subprime lending

Revised intro

I have gone through and cleaned up the intro, but this article still needs a lot of TLC. Since we now have some front-page exposure for this article, I'm hoping some more volunteers will help get this article into better shape. 70.105.70.249 03:34, 12 August 2007 (UTC)

Though it does not show up in the history page, I've modified the article to reflect some of the conditions under which subprime loans are made. In reality, there is no such thing as a "subprime borrower;" many subprime loans were and are made to borrowers who could qualify for conforming loans.

There were some other clarifications as well. I'm not sure why they don't show up in the history - perhaps it's a matter of time before we can see the changes and compare them. NoGutsNoGlory (talk) 17:04, 29 March 2008 (UTC)

More objective, Better informed, Better wording

There is much effort in this article to be diplomatic - but at the expense of the article: for example, it is said that subprime loans are risky... All loans are risky, the difference is in the greater expectation of risk. Also, it was too much emphasis on credit history of the borrower - yet, in reality there are many factors that can result in B-paper loan status (a business owner may have excellent credit and income, but may have more difficulty documenting that income, and so on, and so forth) —Preceding unsigned comment added by Blablablob (talk • contribs) 05:09, 20 August 2008 (UTC)

It's so politically charged as to be difficult to edit. —Preceding unsigned comment added by Blablablob (talk • contribs) 05:15, 20 August 2008 (UTC)

There is too much emphasis on `credit`, but that is only one factor in qualification for A-paper. In areas with very high prices, the ratio of income to loan payments may be the key factor. It is easier to qualify for A-paper with a recently stable job history. Likewise, sales professionals and business owners have more potentially volatile incomes, which may also be more difficult to document. —Preceding unsigned comment added by Blablablob (talk • contribs) 05:34, 20 August 2008 (UTC)

One of the paragraphs is ambiguous, or worse, implies that controversy was the cause of illiquidity. —Preceding unsigned comment added by Blablablob (talk • contribs) 05:38, 20 August 2008 (UTC)

Definitional issues

Could someone explain why it is called Sub-prime? As discussed in the article, the rates typically charged are significantly above the prime rate. Why isn't it called "Super-prime"?

The subprime refers not to the rates, but to the borrower him- or herself, and also to the conditions under which the money is borrowed. He or she is a less-than-ideal candidate for a loan, and therefore subprime

• i have added this to the intro

This is not the case - and is a common misconception. The fact is, many sub prime loans are given to people with solid credit. —Preceding unsigned comment added by 71.170.108.39 (talk) 17:17, 31 March 2008 (UTC)

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I thought that sub-prime (as in sub-prime mortgage) meant that the mortgage rate was below-prime - perhaps (or always?) only for the first few years of the term - after which case the rate would increase and exceed the prime rate in the latter years of the term? In which case, the recent sub-prime crisis was triggered because the initial sub-prime rate period for those first mortgages issued like this had expired and people were now looking at substantially higher payments, which many couldn't afford and hence the default or bankrupcy rate took off?

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—Preceding unsigned comment added by 65.92.8.170 (talk) 12:37, 2 September 2007 (UTC)

a —Preceding unsigned comment added by 61.8.138.154 (talk) 06:09, 14 October 2007 (UTC)

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I worked on setting up subprime lending businesses in the UK about ten years ago and my understanding is that subprime relates to the customer category. There may indeed by some customers who might get prime rates, but that doesn't alter the fact that these products were introduced to sell into less attractive customer segments —Preceding unsigned comment added by 62.190.111.65 (talk) 15:56, 28 April 2008 (UTC)

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Should we add a citation for the definition? I always thought it referred to the interest rate being (usually only temporaily) below the prime interest rate. But here's a citation for the definition which matches the meaning used in the article: http://banking.about.com/od/loans/g/subprime.htm Tim Bird (talk) 17:55, 30 September 2008 (UTC)

new page

i am moving, merging, and renaming the various articles we have on this topic into this article, please feel free to start working on this again as we need citations and references for the existing content Emax0 03:20, 14 March 2007 (UTC)

Just for GFDL history purposes, it appears this article was merged from sub-prime lending and subprime. If someone feels up to it, a history merge could be done from subprime, but it's not a big deal I guess. --Interiot 18:43, 14 March 2007 (UTC)

I suggest moving the information about the people and their credit ratings out of the intro an into credit score (USA). If no one else does it, I'll put this on my to-do list. --Uncle Ed 18:06, 23 March 2007 (UTC)

What I don't understand is, if the banks are causing these people to forclouse. Why not drop the interest rate for existing mortgage and help the the indevidual pay and in v.v. They will help themselfs by not crashing —Preceding unsigned comment added by 216.9.250.118 (talk) 16:05, 23 March 2008 (UTC)

Re-establishing Personal Credit Page

I've rewritten this section, but some references are still necessary. I removed a lot of the personal advice a previous contributor had made. I also renamed the section from "Controversy" to what it is now. Hopefully this helps a bit- Vince 17:08, 14 March 2007 (UTC)

expansion badly needed

The article currently doesn't address a notable factor in the phenomenon, which is that the subprime loans are typically sold off to other investors, shifting risk away from the loan writer and creating incentive to write bogus loans. Here is a Wapo article with some explanation. 64.160.39.153 01:13, 16 March 2007 (UTC) I want to strongly second this and make a couple of other points. Subprime (meaning less than prime loans) are NOT just adjustable rate loans as the article says. They are any loans to borrowers that would not qualify for a conforming (to FHA) loan or to underwriting guidelines for prime loans. There are two components- if the borrower has excellent credit and well known to the lender, some of the otherwise required documentation may be waived (tax retruns, proof of net worth, etc,). The loan will still be a prime loan unless it is a "jumbo" that exceeds FHA/FNMA guarantee limits. But if the borrower's credit is poor, regardless of the documentation, the loan will carry a higher interest rate and fees and be considered subprime.

What the article fails to discuss is that the long period of low interest rates created a demand for higher yielding assets. Investment banks were quite willing to oblige by creating a variety of higher yielding assets that bundled mortgage loans or pieces of these loans as "strips" or tranches. These were then sold to investors. The loan originators made bigger fees from the hard to finance subprime borrowers and the investment banks made huge fees packaging these products. It reached a frenzy level in 2006 when the originators began dropping the credit standards even further to maintain the deal flow. Even first time home buyers were qualifying for 100% mortgages to the dismay of seasoned bankers. At the same time individuals were using the low rates and easy credit to finance speculative purchases of condos and vacation homes. Eventually this all hit the resistance point and the housing market began to stutter and then plateau. Once that happened the train that was the collateralization (funding) of the mortgage market began to run in reverse and equity investors began to look elsewhere, drying up the source of new lending. Ironically, the rising stock markets worldwide contributed to this move away from investment in CMOs (collateralized mortgage obligations). How much damage will ultimately result to the broader financial markets remains to be seen, and is the real story now.

I agree that the structure of subprime deals should not be seen as adjustable loan rates. The basic definition when I was working on establishing subprime products and supporting infrastructure was:

1- The customer had no credit record or a poor one. A sub prime loan would (apart from providing access to lending, of course) provide that customer with a mechanism for establishing / repairing their credit record. 2- There would be a higher cost of borrowing - possibly with a higher upfront fee - to compensate the lender for the higher risk AND for the increased cost of managing subprime customers. This is a significant difference to the model that is being referenced as a definition of subprime (low start mortgages, etc.) 3- This meant that the relationship with the customer was key to the performance of the loan book. Again, the sale of these mortgages as financial instruments was - at the very least - likely to compromise the institution's willingness to maintain this level of contact. Again, the way that the subprime market was originally developed was totally contrary to the definition of subprime in the article —Preceding unsigned comment added by 62.190.111.65 (talk) 16:06, 28 April 2008 (UTC)

Importance Rating

I rated this article top priority in the business and economics wikiproject due to its recent widespread use in the news.--Vince 18:02, 16 March 2007 (UTC)

Added some key concepts

I've added some text as to the types of loans that are considered to be sub-prime loans. I'm also working up some text describing how the capital markets play into mortgage lending in general. This should address the motivation as to why mortgage originators sell their loans off to a secondary market.

Specify USA

The article should make clear in some parts (especially the problems section) that it's referring to conditions specific to the USA.--Shtove 15:14, 30 March 2007 (UTC) I've just added the Globalize tag because I had the same concerns. There's nothing about the UK situation with doorstep lenders like Provident and Cattles, nothing about low documentation mortgages... I'll have a look around and see if there's anything else at WP that covers the UK situation. But I bet there isn't much about the smaller subprime lenders in, for example, New Zealand. Ringbark 17:32, 30 March 2007 (UTC)

Provident and Cattles provide a model of subprime lending that might make an interesting comparison to what is being presented as a standard definition based upon recent US mortgage models

Is there a similar kind of 'meltdown' in other countries that have mature mortgage markets? I would proscribe the following set of questions to anyone who wishes to add a global section, which is by no means comprehensive. What is the risk profile of the British, New Zealand, Japanese, German etc. anologue to the American sub-prime borrower? Who are the lenders that lend to the segment of the population with bad credit? What are the kinds of loan products sold, who are they sold to, and what are their benifits and drawbacks? What role do the capital markets play in the mortgage market? Are there foreign equivilants to Fannie Mae, Freddie Mac, and Farmer Mac? Indeed such questions go beyond the scope of an article concerning a specific cross section of mortgage market. Perhaps a reorginization of articles related to mortgages might be needed. Physicsbovine 22:43 5 April 2007 (UTC)

An international analysis would be interesting, although I suspect that the structure of the US subprime mortgage sector stands alone in its recent actions. low-start mortgages are NOT appropriate products for sale into the subprime market. The detachment of the risk / reward from the broker and initial lender is NOT appropriate for the subprime market.

I think that it is good to describe for each country and make disambiguation. Penpen0216 15:33, 10 April 2007 (UTC)

It is true that this subject needs to be covered in a more 'global' way. Its a common criticism that many articles written by US contributors tend to lack perspective, seeming slightly insular to other readers and sometimes there is a tendency to make assumptions based on US definitions (say, what a person thinks the word 'liberal' means in politics may be wildly different in two different countries.

However the current crisis does seem to be becoming critical in the USA, and there can be no doubt that whether or not institutions outside the US have less exposure to this type of financing, they will feel the ripple effect. The Bank Of England has made a statement to the effect that if financial institutions think they are going to be bailed out then they are in for a rude awakening as they will not 'be rewarded' for irresponsible lending. Several large European institutions are heavily exposed in the USA, and anyway financial markets seldom function in a logical way when the chips are down.

The BoE statement (which they're backpeddling away from now of course) is a bit misleading. I'm not convinced that the banks that bought the subprime mortgage backed instruments really considered these as 'lending'. They have certainly not applied any of the controls over these instruments that would have been expected over UK mortgage lending.

I don't know what will happen, but I'm putting every penny I have into paying off as much of my mortgage as possible - short of putting my kids on bread and water. PrivateWiddle 01:35, 13 August 2007 (UTC)

USA crisis 2006-2007

I really agree with Vince that this is a high priority article. It is hard to read a newspaper right now without seeing an article on this subject. I added a section about the recent crisis in the U.S. I welcome thoughts about how to improve it. There is another article on the site called Subprime meltdown. It is sparse on details of the crisis, and really only focuses on the impact on the lenders. I wonder if people have thoughts as to whether some of this discussion should be moved to that article, or whehter the information in subprime meltdown should be incorporated into the subprime lending article. I prefer the latter, as I don't think people will search for subprime meltdown as much as subprime crisis or subprime lending, but that is just my 2 cents. Thanks. --Mackabean 16:11, 10 April 2007 (UTC)

Since the Meltdown is the current event, not the lending itself, should the current event tag get moved to the Meltdown page? CodeCarpenter 19:44, 23 April 2007 (UTC)

Yes, I think the tag should be moved. Good suggestion. Would you mind doing it? --Mackabean 06:43, 24 April 2007 (UTC)

Subprime Loans, Borrowers, Fraud and Predatory Lending

Not sure if this is the right way to do this but here goes...

With all due respect to well meaning effort this article needs to be corrected and then what is left needs to be split. Unintentionally, the article badly confuses Subprime Loans and Subprime Borrowers while at the same time mixes in elements of Portfolio and Alt-A lending. Add a dash of the incorrect definition of predatory lending and the resultant article is very misleading.

Definitional Issues

SUBPRIME LOANS: Subprime Loans are a class of Adjustable Rate Mortgage (ARM) products that combine loose underwriting guidelines, expensive pricing and contractual terms that always cause the rate to adjust dramatically upward at the end of an initial fixed period (Citations available: Marketing Collateral, Underwriting Guidelines & Mortgage Note terms from Countrywide, New Century, Fremont Investments, WMC, Chapel Funding, Long Beach Mortgage, Bank of America, Wells Fargo, Washington Mutual, World Savings, etc; Also available: multiple mortgage securitization class sylibi + textbooks & state of the industry presentations from Mortgage Banker's Association).

Subprime loans ARE NOT a class of ARM. It just happens that many/most subprime loans are ARM, but not all are!! —Preceding unsigned comment added by Rjwells (talk • contribs) 19:17, 19 November 2007 (UTC)

The entire subject of Sub-Prime loans has ignored several issues: First, the collateral. If it’s under 22’ in any dimension, it’s (mentally?) thought of as a mobile home. This is in spite of the fact that none have been manufactured since 1986. All factory built homes are “Manufactured Homes”. It doesn’t matter if it’s on a permanent foundation on acreage in the country or on blocks in a park, it’s categorized ‘B’ class or less. Second, the location. “Redlining” is illegal and has been for over twenty years, but it’s still (mentally?) practiced. If the home is in an area, for instance, where gas well drilling or other mining is taking place – “B” class or less. Third, the primary purpose of rate. In the history of lending, rate has been the method of assuring profit, or at least, the continuance of the mortgage function of a particular lender. The analysis of collateral versus income ratios and the resultant rate increase has traditionally been to offset the higher risk of job loss and subsequent foreclosure. The entire process was designed to provide more stability in the economy by having more workers own their home, rather than be ‘mobile’ and following the highest wage. It has been (mentally?) perverted into using the analysis as justification for more profit for more investors. Forth, the usurious rate applied creates it’s own volatility. When an ARM rate is adjusted, no ‘business risk’ has been factored into the loan decision. It is (mentally?) assumed that the mortgagee will maintain the income ratios and be able to provide the same percent of profit to the investors. The investor takes their own poor business judgement out of the equation and forces the mortgagee to unfairly absorb the investment risk increase. Worse, the investor does it on an automatic suicide formulation of immediate foreclosure. If the investor would put half of the potential profit in a contingency fund (to create a foreclosure avoidance service), 99% of foreclosures could be avoided. The investment return would simply take a longer, more stable, length of time to be realized.66.82.9.45 14:31, 3 May 2007 (UTC)The Housing Advisor66.82.9.45 14:31, 3 May 2007 (UTC)

SUBPRIME BORROWERS Subprime Borrowers, however, are defined by what they cannot do, not by their credit profile. Subprime borrowers cannot meet the criteria to obtain a Conforming, Portfolio, or Alt-A loan product. They are Subprime Borrowers because they can’t get any other mortgage product. This is an important distinction since a simple underwriting guideline change can transform a person from an Alt-A to a Subprime borrower (or from Subprime to the Credit Disenfranchised) in a moment. In fact this has happened during the first quarter of 2007 as Conforming, Portfolio and Alt-A lenders pulled back underwriting guidelines leaving some formerly creditworthy borrowers to the remaining Subprime industry or worse Credit Disenfranchised. This only highlights the need for the Expanded Guidance for Subprime Lending Programs(2001) to be firmly placed into a historical section of the discussion if it is to remain at all, since all it does is misstate the current state of the industry (Ibid.).

PORTFOLIO and ALT-A LOANS: It is not surprising that Portfolio and Alt-A loans are mixed in with Subprime. Like Subprime Loans, Portfolio and Alt-A may use loose underwriting guidelines and expensive pricing. However, these products are not structured by contract to automatically dramatically increase their interest rate at the end of a fixed term. Many of the loan types, like ‘negative amortization’ and ‘interest only’, do not belong in a conversation about Subprime and badly mislead the reader. Others like ‘initial rate’ and ‘2 to 1 buy-down’ should be included as they rely on contract terms instead of market forces to raise interest rates. The intent of this section is not to say that Portfolio and Alt-A lending can’t be predatory, they just do not belong in the Subprime conversation (Ibid.).

PREDATORY LENDING: One of the sources cited in this article suggests that Subprime Loans and Predatory Lending are synonymous. In no case is this true.

• FIRST: Predatory Lending is a legal term of art and is defined by statute. All residential mortgage products sold in the US are regulated by State and/or Federal agencies that specifically look to see if the products conform to applicable regulations and laws. Any that are found to be in violation are not approved for sale (Citations: Various State & FDIC Regulations depending on the banking license).
• SECOND: Depending on your jurisdiction the definition for Predatory Lending can vary widely. However, one common violation among Federal and State laws generally encompasses the crime: Did the loan economically benefit the borrower? Subprime Loans are not per se Predatory because in some instances they are beneficial to the borrower. The rise of Subprime Loans over the last 7 years has greatly increased the lower middle class’ access to mortgage debt and the socioeconomic benefits that go along with home ownership (which are substantial and well quantified).

(Citation: National Association of Realtors Home Buyers Surveys 2005, 2003, 2001, 1999, 1997, etc; Office of Federal Housing Enterprise Oversite--House Price Index [HPI] on homes over the last 30 years in all census Metropolitan Statistical Areas [MSAs]).

Hi. Thanks for your comments on this article. I agree that there should probably be some differentiation between subprime loans and subprime borrowers. Good point. But I don't agree that there is no crossover between subprime loans and predatory lending. I understood that predatory lending has a legal definition. But it also has a colloquial definition that clearly overlaps with the behavior of some members of the subprime mortgage industry. HUD has a short page on predatory lending here: [1]. If you have a chance to check it out, you will see that it lists such things as Knowingly lend more money than a borrower can afford to repay and "Pressure borrowers to accept higher-risk loans such as balloon loans, interest only payments, and steep pre-payment penalties.:

I think there is pretty wide agreement that this has been going on, at least in some respect, in the subprime mortgage industry.

Also, a couple of things about editing wikipedia pages. (First, please sign your edits and posts on talk pages to improve communication. Second, when you edited major sections of this article, you knocked out a bunch of citations that I put in. Those citations took a fair amount of time for me to compile, so in the future, please think hard about doing that, especially since the vast majority of quotes and information you added is uncited. Thanks : ) --Mackabean 19:57, 13 April 2007 (UTC)

Hello. Sorry if I knocked off some of your sources... it was entirely unintentional... I am essentially doing brain surgery without a license here. That said, on to the comments.

I am afraid that once more I must dispute your linkage between Subprime and Predatory lending. Subprime lending is not Predatory in nature. You cannot link the two. Predatory lending can be partly defined by the HUD link you reference(not going to go into the giant list of Predatory acts that list misses)... however that does not make a Subprime loan Predatory. Predatory lending is a crime. It has specific burden of proof that must be met to be enforced. Subprime loans per se do not meet those requirements. Ergo they *cannot* be Predatory lending. All you do when you link the two is confuse the reader.

If you want to say there has been a great deal of Predatory lending amongst Subprime originators and lenders... I would agree. But it is important to note that Conventional Fannie Mae lending is regularly Predatory. Most A+ borrowers are given rates that do not reflect the best rate they could get. Rates sold over a minimum rate generate a kickback (aka “Yield Spread Premium” or “Rebate”) to brokers and banks. The higher the rate sold to the borrower the larger the kickback. This is not some once in a blue moon event either. It is institutionalized. Fannie Mae, Freddie Mac and private secondary buyers know exactly what is happening because they are the ones paying the kickback. Only the ultra-savvy borrowers can navigate the process without being overcharged. This is only one example of possible Predatory lending(the size of the kickback and its context makes a difference). There is no bright line or black letter law to cover it all. To steal from the NRA, it is not the product that is Predatory it is the Brokers and Banks that use the products. CivilViews 19:08, 17 April 2007 (UTC)

You make good points and I hear you loud and clear. Just to make sure we are on the same page (so to speak) would you agree with the following statemeng?: Subprime lending is not by definition predatory. But many sumprime lenders have engaged in predatory lending, and that behavior has been one of the contributors to the growing crisis in the U.S. subprime lending market? Thanks for your thoughts on this!

I agree that the banks that sell retail subprime are big contributors to the problem. You should also indicate that the wholesale subprime banks and the brokers who sell their loans are also at fault. The Mortgage Bankers Association has annual statistics as to how much is sold retail vs through a broker. CivilViews 04:14, 23 April 2007 (UTC)

Also, since I didn't hear back from you or others about the reorg. proposal below, I went ahead with it with one major change -- I am tryiung to move most of the info on the U.S. subprime mortgage crisis to the subprime meltdown page. I think it is big enough and important enough that it deserves its own space. Anyways, I could really use some help on this article, especially for some of the background sections. For example, I think this article should have a bit about diff. kinds of subprime loans (cars, credit cards) and also the major arguments about why these loans are good are bad. If you can be helpful in any way, I would really appreciate it. You seem to know a lot more about this stuff than I do. Thanks!! --Mackabean 20:10, 19 April 2007 (UTC)

Respectfully, I strongly disagree with placing subprime mortgages (latin for "Deathgrip") in the same catagory as auto loans or unsecured credit cards. There is enough of a difference between promissory notes secured by real property and other debt types that each deserves their own treatment for the sake of clarity to the reader. As a process suggestion... we might just address Subprime Mortgages and once that is in hand we could consider adding additional sections. If that works great, if not I understand, but in any event we should keep the discussions separate or we risk befuddling the reader.CivilViews 04:14, 23 April 2007 (UTC)

Hmmm. I don't feel super strongly about this, and am definitely not an expert. But it seems like there is a class of lending called subprime that encompasses an array of credit areas (car loans, credit cards, mortgages). They are grouped together by the basic concept that they provide credit at worse rates for those who can't get it at normal rates. Right? If so, I don't see why it would befuddle the reader to group these lending vehicles together in an article titled "subprime lending" and then explain how they are different in the article. What is your argument for keeping them separate? Why are promissory notes secured by real property so much different than other promissory notes? I would love to hear your further thoughts on this. Thanks! --Mackabean 06:41, 24 April 2007 (UTC)

Some interesting stuff here, but one point from the very first para - " Subprime Loans are a class of Adjustable Rate Mortgage (ARM) products that combine loose underwriting guidelines, expensive pricing and contractual terms that always cause the rate to adjust dramatically upward at the end of an initial fixed period" - I can't agree with this at all. This may be how the market was being served but this is not how subprime lending started out. Almost by definition you would underwrite these loans (customers) far more carefully than a prime market customer. Also, any contractual terms that "cause the rate to adjust dramatically upward" are almost certainly going to result in default in this sector - these are SUBPRIME customers! If you offer these terms to a subprime customer you are engaged in a VERY high risk model. —Preceding unsigned comment added by Arfurdaly (talk • contribs) 16:25, 28 April 2008 (UTC)

Proposal for reorganization

I suggest that this article be split into 3 sections: Subprime Loans, Subprime Borrowers & Bank Fraud and the Subprime Meltdown of 2006-2007.

BANK FRAUD, PREDATORY LENDING AND THE SUBPRIME MELTDOWN OF 2006-2007: As much as people would like to blame the product, the source of the current state of the Subprime industry can be traced to bank fraud and predatory lending. Late payments and foreclosures are up because loan originators, wholesale bank reps, underwriters, secondary banks, bond agencies and securitizors all fraudulently underwrite these debts at all levels to allow borrowers access to a level of credit that they cannot afford. Simple file audits of loans in State and Federal criminal prosecutions clearly demonstrate the ease at which fraud can be found. However a pervasive ‘nod & wink’ attitude at all levels of the Subprime Lending business, as well as a lack of staffing for law enforcement, allows invented jobs, falsified assets, improper appraisals, etc to flow through every level(Citation: widely commented on under keywords 'mortgage fraud' and 'mortgage backed securities fraud'). All we are seeing now is the industry reaping what it has sown, as property values stall borrowers have lost the ability to conceal what the industry was doing by refinancing once they were no longer able to afford the predatory loan the industry had fraudulently originated (Citation: widely commented on in the press under keywords 'churning' and 'default').

Apologies if my post does not conform to Wiki rules, it is my first Wiki discussion. Comments welcome, tips should go to Wiki. :D CivilViews 09:56, 12 April 2007 (UTC)

Hey CivilViews. Interesting thoughts about reorganization. I would actually like to suggest a slightly different reorg. Here is what I think the table of contents should look like:

• 1. Definition of subprime lending
• 2. Subprime lending vehicles
• 2.1 subprime mortgages
• 2.2 subprime credit cards
• 2.3 other subprime lending vehicles
• 3. Subprime borrowers (definition of what constitutes a subprime borrower)
• 4. 2006-07 subprime mortgage crisis
• 4.1 Causes
• 4.1.1 Bank fraud
• 4.1.2 Lack of enforcement
• 4.1.3 Rise in housing prices
• 4.2 Effects

How does that sound for a new information organization? Since we both seem to be interested in this article, i think it would be good if we can agree on the overall organization before making more edits. Thoughts?

Finally, I want to comment quickly on your note about bank fraud. While i agree that there is evidence that fraud and predatory lending has helped spur the recent U.S. crisis, I don't think we should put too much weight on those issues. There are some somewhat compelling arguments that the subprime industry was swelled in part by potentially well meaning governmental policies designed to increase homeownership. Thanks. I hope we can continue to make improvements to this article, as I think it is very timely and important. --Mackabean 20:11, 13 April 2007 (UTC)

Mackabean

Hey it is Random. How about a Reference Section. Yes or No. --Random ^{Say it here!} 20:05, 19 April 2007 (UTC)

Totally. I actually was just looking around to see why the notes aren't showing up. Do you know how to fix that?

I have not been able to fix the problem. I'm going to bring in a pro. Okay? --Random ^{Say it here!} 22:59, 19 April 2007 (UTC)

Subprime mortgage crisis

I have recently cut down and tried to summarize the section on the Subprime lending#U.S. subprime mortgage crisis. This crisis already has its own page at subprime meltdown and i think it is a big enough subject to centralize information on the crisis over there. In addition, much of the info on this page was repeated verbatim on the subprime meltdown page. I have done my best to summarize the high points of the crisis for this page, but welcome thoughts about major points that I missed. Thanks!!--Mackabean 20:10, 19 April 2007 (UTC)

Good, Good & Good. Well written. I will be back in an hour. Work on External and Sources while I'm gone try to figure out the Problem. Cheers! --Random ^{Say it here!} 20:22, 19 April 2007 (UTC)

Criticisms of subprime lending

Couple minor things

Under the Mortgage Discrimination section there. This is a run-on sentence: Black and other minorities disproportionately fall into the category of "subprime borrowers", even when median income levels were comparable, 46% of home buyers in the African American Neighborhood of Jamaica Queens New York received loans from sub-prime lenders while only 3.6% of those in a predominantly white Bay Ridge, Brooklyn received a loan from a subprime lender.

This sentence probably needs a date included so we know the chronological relevance of the statement: The NAACP filed a lawsuit in federal court in Los Angeles against 12 mortgage lenders.

Also, I added the last sentence about association/causation to point out that the survey as represented in the article does not necessarily (although it certainly indicates the possibility) show racial discrimination.

best - jtp —Preceding unsigned comment added by 137.190.194.20 (talk) 15:07, 8 June 2009 (UTC)

Someone has removed the criticisms of subprime lending, and replaced it was a crude ``risk reward lecture containing excessively nationalistic overtones.

Market Rates

This is a small point, but the current article says that subprime lending offers an mortgages to borrowers who can't borrow at market interest rates. Unless they're offered purely by governments, however, subprime mortagates are market interest rates. Subprime lending simply refers to the part of the market that services people who cannot qualify for the best (lowest) mortgage rates--the way that, say, the junk bond market services firms that cannot borrow at the prime rate.72.83.185.199 17:37, 10 August 2007 (UTC)

Hi Editor

I quote from your article:

"The term "subprime" refers to the credit status of the borrower (being less than ideal), not the interest rate on the loan itself. While often defined or defended as lending to borrowers with compromised credit histories, the Wall Street Journal reported that in 2006, 61% of all borrowers receiving subprime loans had credit scores high enough to qualify for prime conventional loans."

First you say that the term refers to the credit status of the borrower and then you say next that there is a report which indicates that 61% of such borrowers actually qualified for conventional loans. Isn't this a contradiction in terms? I am sure you can elaborate a little on this.

Jeffrey Soh Jeffrey Soh (talk) 12:08, 21 March 2008 (UTC)

U.S. subprime mortgage crisis

I removed the second sentence of this paragraph, because it was not supported by the bloomberg cite. I also adjusted the first sentence to match the cite. I skimmed the main article Subprime mortgage crisis but found nothing that explicitly claimed the "drive down home values" or "homeowners feel less wealthy" speculations. In fact that main article's leadin appears to be more solidly written - maybe this subsection needs a larger update?

Some economists, including former Federal Reserve Board chairman Alan Greenspan, have expressed concerns that the subprime mortgage crisis will affect the housing industry and even the entire U.S. economy. In such a scenario, anticipated defaults on subprime mortgages and tighter lending standards could combine to drive down home values, making homeowners feel less wealthy and thus contributing to a gradual decline in spending that weakens the economy.‹The template Talkfact is being considered for merging.› 

-84.222.6.66 (talk) 13:32, 1 April 2008 (UTC)

"Making homeowners feel less wealthy" is an interesting phrase. In reality if housing prices were inflated when people bought them and the prices come back down to reality, then people are actually not so much feeling "less wealthy" as they are feeling more accurately wealthy. When they bought the house at the inflated price they were feeling falsely more wealthy than they actually were. Just because they feel less wealthy doesn't mean it's a bad thing. IMHO it's a return to reality, even if the landing is a bit jarring. Perhaps the Greenspan-et-al paragraph could use some text to this effect to balance it out. —Preceding unsigned comment added by 137.190.194.20 (talk) 15:21, 8 June 2009 (UTC)

Liquidity

This paragraph needs extensive clean up...

This phenomenon has led to a restriction on the availability of credit in world financial markets. An unknown number of borrowers are making inflated payments and cutting back on other parts of their budget. A large number of borrowers have been forced to default or file for bankruptcy. Hundreds of subprime lenders or brokers have closed, some have filed for bankruptcy and several have been acquired.

... it immediately followed coverage of controversy; it sounds like it's saying that controversy is the cause of liquidity problems. And while I'd like to clean it up, it's unclear what the intent or meaning is - and, should this go in the article regarding the crisis instead?

It's not a restriction, the central banks are stimulating credit - it's a reduction of credit, due to fear and uncertainty in the markets(oversimplified, but more accurate).

Road map and Context

This article would benefit from a road map and context.

For example,

• first: should this article focus on what a subprime loan is, and put crisis material in an other article?

• the Fed lowered interest rates to stimulate the economy, which had a side effect of fueling the housing market - arguably producing regional bubbles and/or a general bubble.
• the time line of the cascade effect
• the role of collateral backed financial instruments in the cascade —Preceding unsigned comment added by Blablablob (talk • contribs) 06:16, 20 August 2008 (UTC)

Definition of subprime

The definition of subprime in this article is factually incorrect:

"In the United States, mortgage lending specifically, the term "subprime" refers to loans that do not meet Fannie Mae or Freddie Mac guidelines. This is generally due to one for a combination of factors, including credit status of the borrower, income and job history, and income to mortgage payment ratio."

Which guidelines? Credit status of the borrower is not a criteria for any of the GSEs. Are you saying jumbo loans are also subprime? If this is an actual definition it should be cited.

I believe subprime in this context refers to the borrower, not the loan itself, and is generally regarded as a borrower with a credit score below a certain level.

An omission

Why in this article is there no mention of the Community Reinvestment Act of 1977 and its history? Especially the role of Fannie May in the mid-90's. Dino1508 (talk) 17:43, 2 October 2008 (UTC)dino

Why's this ended up in 'References' and not in the crisis section?

This sentence "Still others have cited government mandated affirmative action based lending in order to increase home ownership among minorities" appears to have been removed from the 'U.S. subprime mortgage crisis' section at the end of this page - where it fits in the flow, makes sense and is factually correct - and somehow dropped into the note 15 of the References (by mistake?). Even though it's not a reference. I've not amended the page, but maybe someone would like to. I'd probably do it wrong, by mistake... 194.66.90.50 (talk) 15:12, 19 January 2009 (UTC) Matt

Swipe at US versus Brazil?

Take a look at these sentences: "This tax give away is what makes America become the most personally indebted nation in the world. Countries like Brazil that do not use nominal interest rates in housing loans, and do not give such tax breaks do not have a prime nor a sub-prime housing problem."

Really? Brazil? Besides the numerous grammatical errors, this clearly is not neutral POV. The term "giveaway," which should be one word here, is prejudicial. Further, the conclusion here does not logically follow (i.e., that the U.S. tax structure "is what makes America become [sic] the most personally indebted nation in the world"). For one thing, I question the characterization of U.S. as "the most personally indebted nation" because (1) there are no citations to any source, and (2) it's not clear what the author means by "personally indebted nation." Even assuming that part made sense, the conclusion -- and the comparison with Brazil -- seems to be a complete non sequitur.

I would delete the sentences entirely, but it looks like they've survived several previous edits here. Why keep it? BK DC (talk) 22:28, 29 January 2009 (UTC)

Stop editing this article if you do not know what subprime is...!

People must stop editing the definitional related aspects of this topic unless they have a definitive perspective on what subprime actually means.

I initially re-wrote the introduction to state that subprime referred to the borrower, that there were no specific criteria, but it was generally accepted that it referred to borrowers with a FICO score below a certain level (say 660). I reached that conclusion as I work in the industry, but accept there may be other thoughts on the matter. As one piece of evidence to support my conclusion, refer to page 8 of the 2008 10-K of American General Finance, Inc. (a subprime lender):

"There are many different categorizations used in the consumer lending industry to describe the creditworthiness of a borrower, including “prime”, “non-prime”, and “sub-prime”. While there are no industry-wide agreed upon definitions for these categorizations, many market participants utilize third party credit scores as a means to categorize the creditworthiness of the borrower and his or her finance receivable. Our branch finance receivable underwriting process does not use third party credit scores as a primary determinant for credit decisions. However, for informational purposes, we present below our branch net finance receivables and delinquency ratios grouped into the following categories based solely on borrower Fair Isaac & Co. (FICO) credit scores at the date of origination or renewal:

Prime: Borrower FICO score greater than or equal to 660; Non-prime: Borrower FICO score greater than 619 and less than 660; Sub-prime: Borrower FICO score less than or equal to 619"

The introduction to the article as it read on April 1, 2009, and the background section are currently nonsensical. Whoever is responsible for writing them, please state what you mean by the following phrases which make no sense whatsoever to me:

"involves financial institutions lending to borrowers who do not meet prime underwriting guidelines" - please explain what "prime" underwriting guidelines are.

"Subprime borrowers are more likely not to pay the money back" - This comment is meaningless without context - more likely than who?

"The Wall Street Journal reported in 2006 that 61 percent of all borrowers receiving subprime loans had credit scores high enough to qualify for prime conventional loans" - please explain the definition of subprime used in the article - the link does not work.

"The first subprime was initiated in 1993. Many companies entered the market when the prime interest rate was low, and real interest became negative allowing modest subprime rates to flourish; negative interest rates are hand-outs, the more you borrow the more you earn" - this clearly makes no sense whatsoever. People should not edit articles if they can't write properly. —Preceding unsigned comment added by 155.201.35.53 (talk) 18:46, 1 April 2009 (UTC)

Agrammatical lead in

Perhaps it should say "separate market"? -Craig Pemberton (talk) 23:48, 18 October 2009 (UTC)

That sentence was unreadable as it was, so I went ahead and made the change you suggested. Joee92 (talk) 16:48, 1 January 2010 (UTC)