Ranjit
Sachin
Sherine
Sumesh
Vaishnavi
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Prime Loans: Loans provided to borrowers with good
credit histories and carries lower interest rates.
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SubPrime Loans: Loans offered to borrowers with
bankruptcies, defaults, or late payment histories or
loan given to borrower who doesn’t qualify for regular
home loan.
Banks in U.S.A came out with this type of loan.
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Unstable situation affecting a person, a group and
society in general.
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Negative changes in the security, economic, social
affairs when they occur abruptly without no warning.
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Until 2006, housing market was flourishing due to the
fact that it was easy to get house loan.
Individuals would take subprime mortgages, with the
expectation that the value of their home would rise and
they would be able to refinance their home before high
interest come into effect.
The demand of home loans increased and 3 stakeholders
i.e; Bank, Financial institutions and borrrowers.
However, housing bubble burst and housing prices had
reached their peak.
They are now on a decline.
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An overheated market in which there are too many
buyers who are too keen to buy.
As a result, prices rise way too fast, and thus this
system becomes unsustainable.
Eventually, some people start to sell out. The whole
process goes into reverse rapidly, and the bubble bursts,
with people selling in panic so that pric es plunge.
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Housing prices goes up because demand
goes up.
Housing bubbles usually start with an
increase in demand, in the face of limited
supply.
Speculators enter the market, believing that
profits can be made through short term
buying and selling. This further derives
demand.
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Large losses faced by Mortgage lenders, Insurance
companies, Investment banks.
There will be several implications in the banking sector of
India, where banks have to follow stricter norms while
providing loans.
The foreign banks started unloading their holding in Indian
Equities resulting in fall in the stock price and weakening
the domestic currency.
Subprime crisis has led to loss of confidence in investors in
the stock market
Indian banks had limited exposure to U.S mortgage market,
so overall less impact was faced by India than other
economies of the world.
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To help lower income people renegotiate their loans
and stay in their homes.
To lend loans at a normal rate.
To provide liquidity to the needy financial institutions
that they need.