Default (finance)
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| - | In [[finance]], '''subprime lending''' (also referred to as '''near-prime''', '''subpar''', '''non-prime''', and '''second-chance lending''') means making [[loan]]s to people who may have difficulty maintaining the repayment schedule, sometimes reflecting setbacks, such as unemployment, divorce, medical emergencies, etc. Historically, subprime borrowers were defined as having [[FICO score#FICO score|FICO scores]] below 600, although "this has varied over time and circumstances." | ||
| - | These loans are characterized by higher [[interest rate]]s, poor quality collateral, and less favorable terms in order to compensate for higher credit risk. Many subprime loans were packaged into [[Mortgage-backed security|mortgage-backed securities]] (MBS) and ultimately [[default (finance)|defaulted]], contributing to the [[financial crisis of 2007–2008]]. | + | In [[finance]], '''default''' is failure to meet the [[loan covenant|legal obligations (or conditions)]] of a [[loan]], for example when a home buyer fails to make a [[mortgage loan|mortgage]] payment, or when a corporation or government fails to pay a [[Bond (finance)|bond]] which has reached [[Maturity (finance)|maturity]]. A national or [[sovereign default]] is the failure or refusal of a government to repay its national debt. |
| - | + | The biggest private default in history is [[Lehman Brothers]] with over $600 billion when it filed for bankruptcy in 2008 and the biggest sovereign default is Greece with $138 billion in March 2012. | |
| - | Proponents of subprime lending maintain that the practice extends credit to people who would otherwise not have access to the credit market. Professor [[Harvey S. Rosen]] of [[Princeton University]] explained, "The main thing that innovations in the mortgage market have done over the past 30 years is to let in the excluded: the young, the discriminated against, the people without a lot of money in the bank to use for a down payment." | + | |
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| - | ==See also== | + | |
| - | *[[Subprime mortgage crisis]] | + | |
| - | *[[Amortization (business)]] | + | |
| - | *[[Collateral (finance)]] | + | |
| - | *[[Endowment mortgage]] | + | |
| - | *[[Graduated payments]] | + | |
| - | *[[Microcredit]] | + | |
| - | *[[Mortgage loan]] | + | |
| - | *[[Soft loan]] | + | |
| - | *[[Student loan default]] | + | |
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In finance, default is failure to meet the legal obligations (or conditions) of a loan, for example when a home buyer fails to make a mortgage payment, or when a corporation or government fails to pay a bond which has reached maturity. A national or sovereign default is the failure or refusal of a government to repay its national debt. The biggest private default in history is Lehman Brothers with over $600 billion when it filed for bankruptcy in 2008 and the biggest sovereign default is Greece with $138 billion in March 2012.
Unless indicated otherwise, the text in this article is either based on Wikipedia article "Default (finance)" or another language Wikipedia page thereof used under the terms of the GNU Free Documentation License; or on research by Jahsonic and friends. See Art and Popular Culture's copyright notice.
