Abstract
Subprime lending in the United States was a major concern after the 2008 financial crisis. While Covid-19 is sweeping the world, how will the US government and financial institutions deal with the potential crisis of subprime mortgage will be discussed in this study. Financial market institutions and the US government should both change their strategies to deal with the crisis. In addition to controlling the spread of the epidemic, the US government should temporarily lower the minimum wage and provide a series of quantitative financial subsidies. Financial institutions should also update loan data and use better monitoring and regulation to reduce subprime risk to cope with this potential crisis.
Highlights
Subprime mortgages, as opposed to mortgages that have good credit conditions, loan lenders do not have income or repayment ability
By studying the situation of the US loan market after the outbreak of Covid-19, this paper proposes reasonable suggestions for the government and financial institutions to deal with the crisis that has already happened or may happen
At the time of high unemployment, the potential subprime mortgage crisis may come caused by Covid-19 in the US
Summary
As opposed to mortgages that have good credit conditions, loan lenders do not (or do not have sufficient) have income or repayment ability. Because of the rapid development of the financial industry and derivatives, subprime loans in the United States are not limited to the real estate market which is the initial origin leading the financial crisis in 2008. They have expanded to many other industries, such as micro-banking loans and auto markets. By studying the situation of the US loan market after the outbreak of Covid-19, this paper proposes reasonable suggestions for the government and financial institutions to deal with the crisis that has already happened or may happen. The policy and strategy changes proposed in the paper may play a role in the decision-making of future financial crises caused by a similar situation
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