As an addendum to my earlier post about the meaning and misunderstanding of the word subprime. . .
In early 2008, the American Dialect Society named subprime the word of the year for 2007.
Then again, the same group chose plutoed (to be demoted or devalued) as their 2006 word of the year, which goes to show you. . . something, I guess.
Showing posts with label language. Show all posts
Showing posts with label language. Show all posts
Saturday, January 5, 2008
Thursday, December 6, 2007
I Don’t Think That Means What You Think It Means
Here in December of 2007, it is difficult not to hear and read about the burgeoning subprime crisis. This perfect fiscal subprime storm has led to startlingly high default rates on home mortgages. Subprime loans were issued back when the real estate market was fat, dumb and happy, and those subprime loans are now bearing rotten fruit.
Subprime, subprime, subprime!
It's semantics, I know, but it still bugs me. I’d guess that most folks believe that “subprime” refers to the interest rates of these loans. “Sub” means below, obviously. And “prime” clearly must refer to the mythical prime rate. So it must be that really low (subprime) loans were issued to people, getting them into loans they couldn’t afford once those rates adjusted, right?
Wrong. Within the mortgage industry, it is the borrower that the term “subprime” modifies. . . borrowers whose credit scores (generally below 620 or so) are so low, or whose debt-to-income ratios are so high as to make them unqualified to receive traditional loans at decent rates.
“Subprime” does not speak to the rates involved in the loans themselves. In a quirk of language, subprime loans are typically loans issued significantly above standard rates because the borrowers are unqualified for traditional, more favorable loans. Adjustable rates, balloon payments and other monkey business are common secondary characteristics of such loans.
Over time, media reports will continue to screw this up. Reports written by very knowledgeable financial experts and published in respectable outlets will be less than clear in the language they use. And fewer and fewer people will realize that “subprime” refers to the condition of the borrower and not to the loan rates themselves.
Subprime, subprime, subprime!
It's semantics, I know, but it still bugs me. I’d guess that most folks believe that “subprime” refers to the interest rates of these loans. “Sub” means below, obviously. And “prime” clearly must refer to the mythical prime rate. So it must be that really low (subprime) loans were issued to people, getting them into loans they couldn’t afford once those rates adjusted, right?
Wrong. Within the mortgage industry, it is the borrower that the term “subprime” modifies. . . borrowers whose credit scores (generally below 620 or so) are so low, or whose debt-to-income ratios are so high as to make them unqualified to receive traditional loans at decent rates.
“Subprime” does not speak to the rates involved in the loans themselves. In a quirk of language, subprime loans are typically loans issued significantly above standard rates because the borrowers are unqualified for traditional, more favorable loans. Adjustable rates, balloon payments and other monkey business are common secondary characteristics of such loans.
Over time, media reports will continue to screw this up. Reports written by very knowledgeable financial experts and published in respectable outlets will be less than clear in the language they use. And fewer and fewer people will realize that “subprime” refers to the condition of the borrower and not to the loan rates themselves.
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