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Meaning of sub-prime

Sub-prime lending extends credit to people who do not have access to the regular credit market.
It could take the following forms:

  • Loans to borrowers who have an existing history of loan delinquency or default
  • Loans to borrowers already bankrupt
  • Loans that do not meet guidelines stipulated by Fannie Mae or Freddie Mac
  • Loans based on property that cannot be sold on the primary market

Such borrowers who obtain funding on a sub-prime basis are termed as sub-prime borrowers.

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