The Later. Is The Sub- Prime Mortgage Market

Category: Finance.

The market in Australia for so- called non- conforming mortgages- those lent at. relatively fastest interest rates and fees to consumers who lack a good credit. history, proof of a steady income and significant assets- is still relatively. very small.

They have the traditional products( like the. products offered by the major lending institutions i. e. In America there are many. bad- creditloans. products like here in Australia. CBA, and NAB, ANZ. etc) and they also have loan providers that cater for people that fit outside. the traditional lending square i. e. customers with previous credit defaults, a. history of poor loan repayments or non traditional income methods. The summary for origisations in the non- conforming market to rise by as per. year average of 25 percent in the coming Five years- more than double the. pace expected for prime mortgage lending. The later. is the Sub- prime mortgage market. Competition in this segment of the. market will only intensify in the coming years.

Bank of acquired non- conforming mortgage lender Maple Trust earlier. this year. Customers they had previously. avoided. It appears that in the foreseeable future these non- conforming mortgages will. remain by far the Higher- growing segment of the mortgage market. The funders in these subprime market places raise their funding from the same. place i. e. capital markets. they do this through a process of. securitisation where the mortgage backed securities are packaged up and sold. to investors for an agreed rate of return. The sub prime mortgage market in Australia is called the non- conforming market. and is made up of a handful of specialty lenders those cater for the. non- traditional borrower as in the US. In the USA there have been a great deal of demand for Subprime mortgages due. to the fact that these home loans require less documentary evidence( income. evidence etc) to support an application that a prime loan would demand. in. return for less documentary evidence the lender charges a premium interest. rate for the funds.

Some of these lenders have. been offering 125% of the cost of a property to borrowers that have not. demonstrated any evidence or capacity to repay the loan as well as previous. credit issues. they have also been offering products to borrowers called ARM. (automatic reset mortgages) . To cater for the high demand and high competition amongst lenders credit. underwriting standards have been fairly slack and some of the products offered. have been extremely risky. the riskier the loans the greater the percieved. rate of return for the lenders and the investors. These products start at an interest rate that is. better than the standard rates in the first year and then increase over the. next few years to around double the rate. So that, the risk to lenders is substantial in the lowest- rated portion of the. non- conforming market, the so- called" sub- prime" category, where borrowers. have bad credit history, a low asset base and relatively high debt. In a large majority of cases the. borrower is unable to afford the repayments in the second year onwards and. eventually the property is repossessed.

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