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Paper Topic:

US Sub-prme Crises

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The word Sub prime is used to imply the loans that are awarded to the borrowers but the loans do do not meet the prime guidelines . Therefore it can be interpreted as the means in which financial institution extend loans to the borrowers who do not meet the requirements for the optimal market interest rate because of their respective credit worthiness . The Sub prime loans are perceived as being risky compared to the prime loans and this is because of the increased possibility of

the borrowers to default paying . Therefore as a result of the high risks that are involved in Sub prime loans , they are normally offered at a higher interest rate compared to the prime loans . The Sub prime borrowers are characterized by poor financial history that makes them less credit worth compared to the prime borrowers . The Sub prime loans are offered to the Sub prime borrowers because of the low credit scores that are met within the prime borrowing thus the banks weaken the requirements to qualify for a loan which allow the Sub prime borrowers to access loan but this comes with an an increase in the interest rate

The Sub prime crisis is a financial problem that arose in the United States in the late 2006 , and it had a global effect in 2007 and also 2008 . The crisis arose as result of the Sub prime borrowers defaulting to pay back their loans and it mainly concentrated within the housing mortgages (International monetary Fund 2008 . The Sub prime borrowers were enticed by the longterm trend in the housing prices which were increasing all along , therefore they invested their loans in the houses They expected that the value of the houses will enable them to finance their loans , which turned to be the reverse because the value of the houses rather declined other than increasing according to their expectation . This situation exposed them to the inability of financing their loans , thus ending at either default or foreclosure activities The number of defaulters was large because the number of Sub prime borrowers was also large and this was encouraged by the plenty of surplus cash with was at the reserve of the financial institutions which provided them with an incentive of giving out Sub prime loans This crisis was at its optimal point in 2006 , where over 1 .3 United states housing property were under foreclosure . The banks and other financial institutions are reported to have made a loss of about US 379 billion at at May 21st 2008 (International Monetary fund 2008

The emergence of the crisis can be attributed to the economic situation that was in the previous years before the emergence of the crisis , which encourage subprime lending . For instant , in the look at the year 2000 economy of the United States , the economy was characterized with the lowest interest rate ever experienced in the United States of 1 (Caruana 2007 . In economic interpretation of interest rates is...

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