Subprime market-Wikipedia

Subprime market On the one hand, a part of the private (i.e. not serving for commercial purposes) refers to mortgage loans, on which borrowers are mostly taken into account with a real estate in US banks or were persuaded to acquire real estate. On the other hand, it describes the market on which securitized packages of such mortgage loans are traded – often between banks and internationally.

Translated means subprime “Second -class”; From 1993 the term was initially created in the United States, later also in other English -speaking countries.

In addition to personal aspects, the credit assessment also includes real estate -related criteria. As an important number, the debt-to-income-ratio , the relation between the gross income of a debtor and the entire debt service. It should not exceed 45% of the gross income; In other words, 55% of the gross income should at least be left over to the debtor after paying his monthly rate. The equity ratio (Loan-to-Value-ratio) should be at least 10%. All factors become a rating (or credit score ) summarized. It should reach at least 620 points on a scale of 300 to 850.
Loans with a credit score Among 620 is called ‘Subprime Loan’.

From 2006, the extremely increasing granting of such risky real estate financing prompted the US banks to have large parts of these credit claims-partly combined with prime-loans – in securities -like, easily transferable so -called CDOS ( Collateralized Debt Obligations ) or to bundle similar structured forms of financing and, with an attractive rating of external rating agencies, to sell to European or Asian banks. This previously became internationalized.

In the initially acquired real estate, it was primarily self -used single -family houses and (to a little less degree). In the course of the formation of the bladder, which was preceded by the subprime crisis, the proportion of real estate that was not used and only acquired for speculative purposes also increased.

The subprime risk did not realize as long as the borrowers concerned used their subprime loans in accordance with the contract. As the loan rates rose and other loan -relevant factors deteriorated (income), the creditworthiness quantified in the rating sank. Many borrowers finally arrived in late payment, and the subsequent foreclosure brought the banks losses because the trend ended in constant real estate prices and ‘bubbles’ bubbles in many places.

Often under the term Subprime market incorrectly also the expression Non-conforming (mortgages) -markt understood. In the United States and Great Britain, however, these two markets are significantly differentiated. Borrows with little credit rating that serve your mortgage loan in accordance with the contract fall into the Subprime -Segment. Mortglary loans, which are not the market standards that are customary in the market, especially in the area of ​​lending loan-to-value-ratio ), Duration or loan amount, fall into the Non-conforming -Segment.

The Federal Housing Finance Agency is the US supervisory authority responsible for the regulation. In 2010 she reported that fines were imposed on 64 issuers. ^[first]

1. ↑ Nick Timiraos: U.S. Queries 64 Issuers of Mortgage Securities, Others. The Wallstreet Journal, 13th July 2010.