Subprime market
On the one hand, the subprime market describes a part of the private (i.e. not for commercial purposes) mortgage loan market on which borrowers with mostly poor credit ratings took out mortgages from US banks or were persuaded by them to buy real estate. On the other hand, it describes the market in which securitized packages of such mortgage loans are traded - often between banks and internationally.
Translated, subprime means "second class"; the term originated from 1993 first in the USA, later also in other English-speaking countries.
In addition to personal aspects, property-related criteria are also included in the credit assessment . An important number is the debt-to-income ratio , i.e. the relation between the gross income of a debtor and the total debt service . It should not exceed 45% of gross income; in other words: 55% of the gross income should remain for the debtor after paying his monthly installment. The equity ratio ( loan-to-value ratio ) should be at least 10%. All factors are combined into a rating (or credit score ). It should achieve at least 620 points on a scale from 300 to 850. Loans with a credit score below 620 are called 'subprime loans '.
The extremely increasing granting of such risky real estate financing has prompted US banks from 2006 to bundle large parts of these loan receivables - sometimes combined with prime loans - in securities-like, easily transferable CDOs ( collateralized debt obligations ) or similar structured forms of financing , with an attractive rating from external rating agencies , to sell to European or Asian banks. This internationalized a hitherto purely US risk.
The properties acquired were initially primarily owner-occupied single-family houses and (to a lesser extent) condominiums. In the course of the bubbles that preceded the subprime crisis, the proportion of real estate not used by the company itself and acquired only for speculative purposes rose.
The subprime risk did not materialize as long as the borrowers concerned serviced their subprime loans in accordance with the contract. When lending rates rose and other credit-relevant factors deteriorated (income), the creditworthiness quantified in the rating fell. Many borrowers eventually defaulted , and the subsequent foreclosure auction brought the banks losses because the trend of steadily rising property prices ended and property bubbles 'burst' in many places .
The term subprime market is often also incorrectly understood as the term non-conforming (mortgage) market . In the USA and Great Britain , however, there is a clear distinction between these two markets. Borrowers with poor credit ratings who service their mortgage loan in accordance with the contract fall into the subprime segment. Mortgage loan, which do not comply with current standards, in particular in the range LTV ( loan-to-value ratio ) or term loan amount sufficient to fall within the non-conforming segment.
The Federal Housing Finance Agency is the US regulator responsible for regulation. In 2010 it reported that fines had been imposed on 64 issuers of securitisations .
See also
Individual evidence
- ↑ Nick Timiraos: US Queries 64 Issuers of Mortgage Securities, Others. The Wallstreet Journal, July 13, 2010.