A one paragraph summary of subprime lending and how it factored into the financial crisis.

Expert Solution

Subprime Lending

The type of loan offered that is given at a rate more than the normal or the prime or prevailing rate to individuals who do not get loans on prime rates due to any reasons. High rate of interests, poor quality collateral, and less favourable terms in order to compensate the higher risk are the main drawbacks of subprime loans. There are high cases of defaulters in subprime loan cases. Subprime loan borrowers have low credit rating and there are high chances of their being defaulters on the debt repayment and because of these reasons they are often turned down and not kept at par as the normal borrowers by the traditional lenders.

When the applicants for loan are unable to get loan due to any reasons they are given loans at an highet interest rate. Thus, the interest rates are too high when compared to normal and regular interest rates. When the applicants are not getting normal loans that itself clarifies that they are not capable of paying interest back or are not worth of getting that loan, but still they get subprime loan on a higher rate of interest then it is very much obvious that they are not in a position to repay the loan and they become defaulters. This situation forces them into financial crisis.

Rahul Sunny answered 1 year ago

18. The financial crisis of 2007 began in the United States with the subprime crisis, but...

18. The financial crisis of 2007 began in the United States with the subprime crisis, but this domestic crisis quickly spread beyond the US. Describe (don’t just list) the FOUR reasons presented for why this crisis became global, in other words the four reasons for the rapid international contagion of the subprime crisis.

Discuss how the subprime mortgage crisis of 2007 was based upon the flawed financial model that...

Discuss how the subprime mortgage crisis of 2007 was based upon the flawed financial model that house prices only increase.

Propose a factor that captures the effect of a financial shock (e.g., the subprime crisis) as...

Propose a factor that captures the effect of a financial shock (e.g., the subprime crisis) as a leftward shift of the Aggregate Demand in the P-Y space. You should clearly state the factor, how the factor changes (increase or decrease) and explain how it shifts the Aggregate Demand Curve to the left in the P-Y space.

Give an overview of the financial crisis: the use of subprime mortgages, mortgage backed securities and...

Give an overview of the financial crisis: the use of subprime mortgages, mortgage backed securities and CD Swaps; the failure of Bear Stearns and the government’s intervention; the failure of Lehman Brothers and the government’s refusal to intervene; how the government bailed out AIG (discussing what AIG did that made it vulnerable and in need of a bailout – why it was “too big to fail”); and the government’s capital infusion of the banking system (discussing what the government did...

11. Finance companies have recently experienced an increase in subprime lending characterized by Select one: a....

11. Finance companies have recently experienced an increase in subprime lending characterized by Select one: a. higher costs of loan servicing and collection. b. borrowers with low or non-existent credit record. c. higher fee, higher interest rate loans. d. All of the above 12. An individual private pension plan that allows individuals to set aside a certain sum of employment income, subject to a maximum, into an account without having to pay tax on it and the interest earned on...

*The 2007 – 2009 Financial Crisis began with: A. defaults on subprime mortgages. B. commercial banks...

*The 2007 – 2009 Financial Crisis began with: A. defaults on subprime mortgages. B. commercial banks losing their excess reserves. C. hedge funds going bankrupt. D. a sharp increase in the federal funds rate. *Proposals for future financial reform include: A. a general rule to allow financial markets participants to conduct their business in an unconstrained manner B. rules to increase excessive risk taking C. less regulation for nonbank financial institutions D. policies to prevent institutions from becoming “too big...

Greedy investing in subprime mortgage securities caused the financial crisis of 2008. Explain why the first...

Greedy investing in subprime mortgage securities caused the financial crisis of 2008. Explain why the first sentence is true (or explain why you disagree if you think it is not true). How did subprime mortgages in the U.S. become a worldwide financial issue? Did any of you suffer as a result of the financial crisis of 2008 ( or your parents, if that is a more age appropriate question). I'll start: I tried to sell my house during the financial...

why securitisation was accused to be at the heart of the 2008 subprime crisis

Read through the material provided on how the Federal Reserve responded to the subprime mortgage crisis...

Read through the material provided on how the Federal Reserve responded to the subprime mortgage crisis and consequent 2008-09 recession with monetary policy. Now, answer this: Do you support what the FED did in theory and practice? In particular, discuss your take on the series of quantitative easing measures we have witnessed since the crisis and the recent changes in FED outlook. Do you believe it is too early to raise interest rates by tightening money supply, or do you...

In a short paragraph, briefly describe the underlying vulnerabilities that led to the financial crisis of...

In a short paragraph, briefly describe the underlying vulnerabilities that led to the financial crisis of 2007-2008, and the regulatory changes that have been implemented to avoid a repeat of a similar crisis in the future.

Question