See: Subprime. See: Market.
It's a market. Just like a normal bond market or a normal stock market or a normal real estate market or even a normal Safeway.
Subprime loans happen all the time, and they're not as dramatic as the name implies. In fact, they're just "below prime," like....loans made to people without excellent credit.
So...how do you attain vaunted subprime status? Eh, maybe you're new to the land of borrowing money, so you have no credit history. Or maybe you did have a history, but didn't realize that you can't just spend without paying, and that loans carry interest.
There are literally millions of subprime loans made out there in the giant financial cloud in the sky. They get traded like stocks and bonds as well. As in: "Hey, I have 143 subprime auto loans that pay an average of 9.7%; 7 of them are late, the rest are fine; durations range from 2.3 to 11.6 years with an average of 6.1 years." (Duration, as in: when the loans are fully paid off.)
Someone buying that, say, $2 million worth of loans would stand to make just under 200 grand a year if everyone paid off on plan, or on schedule. And that's a lot of "yield" in today's world, where prime borrowers pay closer to 3% than 10%.
So...it's a market. Yeah, there's risk. But you as a lender get paid for taking the risk in the form of big, fat, juicy interest rates going to your coffers. Or bumpers. Or curbs. Or whatever you're loaning money for borrowers to do.
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Finance: What is a Mortgage?345 Views
Finance allah shmoop shmoop What is a mortgage Well people
a mortgage is just dead it's alone but one with
special tax treatment For most people simply put Any interest
you pay on a mortgage to buy a home is
tax deductible Morty morton's inputs down a hundred thousand bucks
to buy a home that costs four hundred big ones
his mortgages three hundred grand at five percent interest per
year So that's fifteen thousand dollars a year he pays
to rent the money from the bank which he uses
to buy his dream home with the loop de loop
waterslide Morty earns one hundred grand a year and pays
tax on his last fifteen thousand of earnings soas faras
The irs is concerned since morty can deduct his fifteen
thousand dollars in interest against his earnings he does not
in fact earn taxable wages of one hundred grand annually
Instead he earns taxable wages of eighty five thousand dollars
a year Essentially with government is doing is sharing in
some of the cost of renting the money Taub i'm
ortiz home well why would the u s government be
so charitable Well because home ownership has been integral part
of the american dream since the u s of a
i po'ed in seventeen seventy six easy access to mortgages
and then home buying can be a hugely beneficial asset
In the vast majority of cases homes create family stability
a store of wealth and tax dollars for local schools
in the form of real estate taxes So don't feel
bad about splurging on that water slide there Morty Just 00:01:42.93 --> [endTime] remember you're doing it for the kids Hello
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