subprime loan business definition

Case Study Loans of questionable quality (many were of unquestionably poor quality) drew big and small lenders seeking above-average returns in the low-interest-rate environment of the years 2002 to 2007, and especially during 2005 and 2006. Nowhere was aggressive lending more evident than in residential real estate, where individuals were often able to obtain mortgages with no money down and no proof of income. The easy availability of credit brought high times to lenders, brokers, and homebuilders until the bubble burst in early 2007, when many financially strapped borrowers stopped making required payments on their loans. Being unable to make payments wasn't such a problem when home prices were rising and borrowers could refinance or sell the mortgaged real estate at a profit. It became a major problem, however, when home prices stopped rising and actually began declining in many markets. One of the major lenders in the subprime mortgage market was New Century Financial, a company formed with venture capital in 1995. The firm became the country's second largest subprime lender, and in February 2005 branded itself as a “New Shade of Blue Chip." Approximately two years later, the firm announced it was restating financial statements and would not be accepting new loan applications. Lenders had cut off credit to the company and were demanding repayment for some of their loans. New Century's common stock began trading on the Pink Sheets after having been delisted from the New York Stock Exchange, and the firm filed for bankruptcy in April 2007. Other subprime lenders were suffering similar fates, and many had already dropped out of what had become a very risky business.