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Essay / Research Paper Abstract
This 10 page paper examines the crisis in the subprime loan market in the United States, looking at how and why it has occurred, the relevant pressures and the impact it is having on the banks and other lenders. The bibliography cites 9 sources.
Page Count:
10 pages (~225 words per page)
File: TS14_TEsubprime.rtf
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Unformatted sample text from the term paper:
as the secondary market or second chance lending market is the source of loans from consumers who have poor credit histories and would not otherwise be able to borrow money.
The poor credit history may be due to poor credit management or delinquency in the past, or may be due to specific difficulties such as a lack of firm credit
history or personal issues which may make borrowing difficult such as employment history, from example temporary jobs or certain types of self-employment. The
sub-prime market lends money to these individuals at a higher interest rate than the usual or prime market. The reason for this is the level of risk associated with the
sub prime market; the applicants will funds are hired potential of defaulting on the loan so the institutions offering the funds will demand higher interest rates to compensate for the
increased level of risk. Overall, the sub prime market sees an increased likelihood of defraud 10 times greater than the prime market, but the majority of loans; 95%, do not
suffer from default. Therefore, this may be argued as a very viable market for the majority of lenders as well a serving an important purpose allowing many borrowers access to
funds to help them make purchases which would otherwise be impossible for them to borrow. Without this route sub prime lending for home loans many individuals or families would not
have had the opportunity to own their own home (The Journal of Real Estate Finance and Economics, 2004). It has been noted that in some situations borrowers who may have
been eligible for prime market have been targeted by the sub prime market, resulting in borrowers taking out borrowers in minority groups, such as single women or ethnic minorities (The
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