Posts Tagged ‘Definitions’

How Subprime Financing Works

Written by Timothy Blake on August 02, 2007 under Archives, Definitions

Banks like Merrill, Bear Stearns, Lehman Brothers and JPMorgan Chase have long been attracted to buying subprime loans from lenders because they can convert them into mortgage-backed securities and sell those bonds to hedge funds and other institutional investors. It’s been a profitable endeavor in the past few years for those companies that got into the market at the right time.

Alt-A and Subprime Mortgages Defined

Written by Timothy Blake on August 01, 2007 under Archives, Definitions

Alt-A is a product type mortgage, usually low documentation and lower loan-to-value, whereas subprime is a customer type mortgage typically because of low credit scores. In the first half of 2006, 16 percent of mortgage originations by dollar volume were Alt-A, vs. 62 percent for prime, 19 percent for subprime, and 3 percent for other.

Undertanding Why Mortage Money Is Drying Up

Written by Timothy Blake on July 31, 2007 under Archives, Definitions

Financial backers that pumped money into the mortgage industry are getting pretty tight with their money. In the following example the banks we refer to are not like your local bank. These banks lend money to a mortgage lender, the mortgage lender funnels that money into mortgage loans, and the mortgage loans act as collateral securing the credit line. Lenders are not normally entitled to demand upfront repayment. A margin call takes place when collateral securing a loan loses its value. When that happens, there is nothing protecting the lender from default by the borrower – in this case the borrower is a mortgage lender – so the lender pulls the plug with a margin call.

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