Upside Down Mortgage

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Subprime Meaning

Question: What does Subprime Mean? and has anyone seen this….?

What is subprime? and prime minus half (or wut ever its called)? has anyone else seen this vid. So is Obama Bad?

http://www.youtube.com//watch?v=H5tZc8oH–o

and is fannie and freddy….everywhere in the us or just in some areas.

Answer: Subprime means that the loan does not meet normal criteria, that there is a greater risk that it will fail.

Justin OBrien: Future of Financial Regulation

Meaning Subprime

Question: can someone explain to me the housing crisis 0f 2008?

how did this happen and what does Fannie and Freddie Mae have to do with it?
and what does subprime mean?

Answer: Ok, where to begin?

Housing prices have been on the rise for the last 30-odd years or so. A large number of people thought that housing prices would never go down. This opened up the window for real-estate speculators, banks and a whole host of consumers to buy and use real-estate kind of like an ATM. Since the price would never come down, loan after loan could be taken out against the property, at ever increasing prices.

Then a funny thing happened. The banks and mortgage brokers started giving out looser and looser loans. To the point where the traditional 20% down and fixed interest payments were no longer required. That is what a sub-prime loan is. It was a loan that was granted to applicants that sometimes didn't even have to prove their income. The catch was that, more often than not, the interest rate was variable. The loan payments were not fixed and as the interest rate rose, the monthly payments on the loans went up. This caused a large number of foreclosures, or bank repossessions.

Normally not something that would have a global impact. Except the fact that this started to drive down the prices of houses as more and more were put back on the market. This triggered an avalanche as more homeowners started to realize that they owed more on their house than what the house was worth. Which in turn has caused more and more foreclosures.

Then we start getting into the really fun stuff. Since most banks literally don't hold enough cash on hand to conduct daily business just off of customer deposits, they tend to get creative in ways to which make money. One of those ways was to "bundle" groups of home loans together and sell as a sort of stock or investment. Remember, the price of these houses were only supposed to keep going up. These handy little pieces of paper are known as Credit Based Derivatives and are now practically worthless. They have been sold all around the world, oftentimes to other major banks. These fancy pieces of paper were then insured by major companies like AIG and have driven them to insolvency.

Fannie Mae and Freddie Mac were two government sponsored yet privately owned companies that bought and backed about 50% of the mortgages in the U.S. The extent of the foreclosures that happened in the last two years was so great that it bankrupted these two companies. Just as it has done to all the other banks.

This goes so much deeper than you could ever imagine. It has come to the point where it has in essence bankrupted the U.S. if not the entire world. It has started a domino effect that has seen bank after bank go bankrupt. To the point where banks are not even willing to loan to other banks, let alone businesses or the ordinary consumer.

The list goes on and on. This is only a small sample and I am being as brief as possible. It all boils down to deregulation of the banking system and a market that allowed greed to consume everything. Americans have been living off of debt for a long time and it finally caught up to us. It is going to be something that takes a very long time to get out of.

So Subprime Blows Up; So What, Says Cramer