Mar 20 2008, 05:31 PM
QUOTE(chin20350 @ Mar 20 2008, 05:07 PM)
Any1 can explain roughly about the subprime lending?? the definition i found in Wikipedia so difficult and i dunno its meaning......=.=
and why Subprime mortgage crisis will make losses to bank....
The word of subprime already explains it. and why Subprime mortgage crisis will make losses to bank....
Sub-prime.It is those loan given out to people not qualify as prime borrowers aka credit history or qualification that's not good.
Those subprime loan is highly sort because of real estate bubble in US. So when real estate price keep on surging, even those not able to pay the loan one also take up housing loan (subprime loan) to try to gain in real estate. It is even more being fueled by low interest rate previously (1%) aka low month paid. But since after that, interest rate surge to 5.25%.
When real estate price keep on going up, those subprime loan won't have a problem as subprime borrowers if not able to pay up can easily dispose the property and still gain through the property price appreciation. But when the real estate bubble burst, then all gone, property price goes down, no one wants to buy, and subprime borrowers not able to pay up their loan, defaulting it.
Worst still banks take property as collateral in mortgages at high point of property price. Eg. when property market price bubble time, it was 100,000, subprime borrowers borrow 100,000 from the bank. But he/she cannot paid up afterwards and default it so banks took over the collateral property, but now the property price is 80,000 only. So banks need to bare the 20,000 losses, that's why you see massive writedown in banks all over the place.
Just a simple explanation, real situation is much more complex than that.
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, but now i understand 
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