QUESTIONS From My Delaware Buyer: We're hearing a lot about "sub-prime" loans. What are they?
A. Sub-prime lending, is the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history. Most borrowers of this type have a credit score of less than 620.
Sub-prime lending is risky for both Delaware lenders and borrowers due to the combination of high interest rates, poor credit history, and adverse financial situations usually associated with sub-prime applicants. A sub-prime loan is offered at a rate higher than A-paper loans due to the increased risk.
Sub-prime lending is highly controversial. Opponents have alleged that the sub-prime lending companies engage in predatory lending practices such as deliberately lending to borrowers who could never meet the terms of their loans, thus leading to default, seizure of collateral, and foreclosure.
There have also been charges of DE mortgage discrimination on the basis of race. Proponents of the sub-prime lending maintain that the practice extends credit to people who would otherwise not have access to the credit market.
The controversy surrounding sub-prime lending has expanded as the result of an ongoing lending and credit crisis both in the sub-prime industry, and in the greater financial markets which began in the United States. In addition, many sub-prime mortgages have been made to borrowers who lack legal immigration status in the United States.
This phenomenon has been described as a financial contagion which has led to a restriction on the availability of credit in world financial markets. Hundreds of thousands of borrowers have been forced to default and several major American sub-prime lenders have filed for bankruptcy.
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