The NINJA Loan

Whenever you apply for a loan, one idea always needs to be in the back of your mind. Eventually, you will have to pay it back. You need to have a reliable source of income to prevent a default and further penalties.

The current housing crisis looks grim. Houses are foreclosing left and right, and families are being displaced. Economists are unsure when it will end, or even if the worst has already passed. But just a few years earlier, home ownership was booming. How did it spiral downward so quickly?

The main issue during the housing crisis is the extreme amount of subprime loans. These loans are given to people who don’t qualify for prime loans, mostly because of a low credit score (typically below 640) or because of low income. Lenders bank on the borrower’s ability to repay the loan, and if they see a low credit rating or low income, they will be less likely to give out a loan. But some lenders will give out subprime loans to people. Why? I have no idea. Maybe they think they’re being generous by allowing a low-income family to own a pricey home, even if the family can’t pay the mortgage. It’s no wonder the subprime loan is also called a “default” loan because, more often than not, borrowers given these loans cannot pay them back. Even worse, the amount of interest is variable, meaning extra fees grow in time, some times doubling or tripling! (That might be why lenders give them out…)

The most infamous of these subprime loans is called the “NINJA” loan. It is advertised as “no income, no job, no assets,” and it is EXTREMELY risky for both the borrower and the lender. With a NINJA loan, a lender gives it to a borrower with little information required from the borrower. Sometimes, the borrower even falsifies information, such as a source of income, and there is no background check. With an expansive interest rate on the loan, the borrower’s only hope (other than winning the lottery or actually making a reliable amount of income) is for the value of the home to also increase, so the loan can be repaid.

When home prices can’t catch up to the growing interest of the loans, borrowers cannot repay the loan. Foreclosure is the result, and these subprime loans are the main cause of the current housing crisis. You should really think twice if you are ever considering a NINJA loan because you might end up with problems an actual ninja can’t solve.

David Pilley

David Pilley

David Pilley is a May 2010 graduate of the University of North Carolina at Chapel Hill, with a B.A. in communication studies and a creative writing minor. He is a native of Raleigh, North Carolina.

He played clarinet for the Marching Tar Heels in 2005 and 2006. He also volunteered for STV, the student-run television station at UNC-Chapel Hill, in the spring of 2010. He shot video, wrote scripts, and acted for “Off the Cuff,” UNC’s longest running sketch comedy show. He has the rare distinction of having lived in a dorm all four years of his undergraduate college career. He was also on Franklin Street on the night of April 4, 2009. His future plans are to pursue a master’s degree in journalism and to one day work for the media as a sports journalist or broadcaster.

Being one of eight children, David realizes finance is an important topic to everyone, regardless of his/her knowledge of the subject. His interests are in personal finance, budgeting, and savings.

In his spare time, David enjoys watching sports and standup comedy, as well as doing crossword puzzles and writing in the first person. He also thoroughly enjoys trivia and, one day, hopes to participate on the game show Jeopardy!, where he will try to break Ken Jennings’ 74-game win streak.
David Pilley

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