Subprime Lending, Teaser Offers, and NPS
The headline of our day is the mortgage crisis in the U.S. In particular, a new term has entered our lexicon, the “subprime” mortgage. Of course, subprime simply refers to loans made to people with a relatively weak credit history; the free market economy solution to this problem is that those who are eligible for such a loan should pay a higher rate of interest, to reward the lender for the additional risk of non-payment they take on. This is a demand killer in this market, as those participants with poor credit are usually in that segment because of their limited ability to pay at normal interest rates, let alone penalty rates.