Question
Mary believes that the ten percent required down payment will protect the bank from a loss of principal.However, should the loan default, the funds are
Mary believes that the ten percent required down payment will protect the bank from a loss of principal.However, should the loan default, the funds are likely to be tied up, without interest income for six to nine months.The funds could have been used to fund a prime loan at around six percent interest with a default rate of well under one percent.Mary is wondering whether or not the two percent premium paid on the performing loans will cover the expected loss from the nonperforming loans.She expects a potential default rate around 3-5 percent.The average home loan is about $200,000. I just wanted to confirm that the non performing loans are the ones that become default for about nine months and that would come to $7626 interest loss and that the performing loans are the subprime loans?
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