Create a 7 pages page paper that discusses subprime lending, its adverse effects on uk and world financial markets and methods to rectify and protect consumers.

Create a 7 pages page paper that discusses subprime lending, its adverse effects on uk and world financial markets and methods to rectify and protect consumers. From a different point of view, it is noticed by Reiss (2005) that ‘predatory lending, the origination of loans with abusive terms to homeowners, is rampant in the subprime mortgage market’. The approach used by Reiss in order to explain the conditions related to subprime lending is based on the extensive use of this type of lending specifically in mortgages.

However, it would be necessary to notice that subprime lending is not used by all consumers worldwide. it is rather preferred by specific categories of population: those who have high credit risk and the use for an alternative method of financing the purchase of a specific product/ asset would be proved inappropriate. In fact, it has been found by Wachter et al. (2007) that ‘subprime lending serves those with relatively high credit risk and therefore entails higher borrowing costs. this market has grown tremendously over the past decade, although with substantial variation in growth rates across the central cities of metropolitan areas in the US’. The above phenomenon does not characterize only the American financial market. In the UK also subprime lending is extremely developed helping consumers to proceed to the purchase of house when such an option is not available to them (due to their credit rank). In fact, in the research made by Munro (2005, 7) it was proved that in 1995 in Britain ‘the average debt was less than £1,000 and the top ten percent of debtors owed £5,000. in 2000 the comparable figures were over £2,000 and £9,000 respectively. in mid-2002 10 percent of family households paid more than 25 percent of their gross income on consumer credit repayments’. In other words, in the UK all the necessary requirements exist in order for the subprime lending to flourish.

At this point, it would be important to define the terms under which this type of lending should be used by consumers in the UK but also worldwide.&nbsp.