With all the talk about the subprime mortgage mess, it’s surprising how much misinformation is still clouding the issue. Just recently, I was listening to a national talk radio show about the whole economic meltdown. A caller described subprime mortgages as mortgages with interest rates lower than the prime interest rate. I waited for the host to interrupt, and tell the caller he was misinformed.
But he never did. In fact, the host echoed the sentiments of the callers–apparently believing the same misinformation.
For the record, subprime mortgages are a class of mortgages used by borrowers with low credit ratings. These borrowers generally don’t qualify for loans with lower rates because they have insufficient or damaged credit. They’re justifiably seen as risky borrowers. So lenders charge higher interest rates on subprime loans than they do on loans to borrowers with good credit.
1 response so far ↓
1 Leonard Shapiro // Nov 9, 2008 at 12:12 pm
The caller on the sub-prim mess was trying to say that part of the sub-prime mess was because of the Neg-am loans. this is what he meant. The were many reasons for the mortgage meltdown and one part is the neg-amortization loans that were put out lower than the normal interest rates. People that took them did not understand that and the brokers that sold these did not explain it to them. This is what the caller waas refering to.
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