what is sub-prime crisis?

Question

why the central bank in world fear of sub-prime crisis

Answer 1

Prime rate is what banks pay the government for money. A couple of years ago, to make houses more affordable, the banks offered "sub-prime" starter loans. These loan rates were teaser rates to get the customers to sign up. The rates were variable, meaning the contract stated that as the prime rate went up, the loan interest rate would go up too.

As the interest rates rose, so did the loan rates. A 1-2% loan was now having to be paid at 2-3%, then 3-4%, and so on. (to about 6% at this point, I think. That would, for some, triple a loan payment. So people, no longer being able to pay their mortgage, left their homes in foreclosure, or non-payment.

Now the banks have a bunch of expensive houses nobody can afford any longer and no money being paid to the banks any longer. Loan divisions of some banks have had to shut down.

That is the sub-prime crisis.

Answer 2

Sub-prime is the term given to loans where the debtor has a more questionable credit status. These are usually given to a debtor at a higher interest rate, because the person needing the loan cannot get a lower rate because of their weak credit.

When the market starts tightening up on these loans, it makes it more difficult for the lending agencies to continue to do business. You may have read that Countrywide just got a two billion dollar bailout from Bank of America. These type of bailouts can put a strain on world finances which is why the central bank of the world fears them. Hope this helps.

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Answer 3

The various stages in the economic crisis started with a drop in the prices of real estate, followed by failures to repay mortgages which had in certain cases been transferred form the original banks where they were arranged to secondary banks. These mortgages became known as sub-prime investments. They began to fail due to the owners loosing their advantages in land speculation, after the real-estate prices became so high that no more business was possible. So although the sub-prime crisis was not exactly the first thing to occur it was close to the beginning of the series of causes that led to the recession.

Answer 4

Ha,ha!

Answer 5

I THINK ITS WHEN THE BANKS DONT HAVE ANY MONEY. THEN PEOPLE RUSH TO THE BANK FOR THEIR MONEY AND THE BANK CANT GIVE EVERYONE THEIR MONEY.

Answer 6

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