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subprime or sub-prime

adjective

used to describe lending at a higher rate of interest because it involves borrowers with an increased credit risk

'But industry experts say these steps won't necessarily translate into lower mortgage costs for some 2 million Americans with risky subprime home loans with rates that are scheduled to adjust sharply higher over the next year.'

Reuters 23rd January 2008

'Lenders are cracking down on sub-prime borrowers across Britain and could force tens of thousands of homeowners into forced sales of their homes, property experts warned yesterday … The global credit crunch provoked by the crisis in American sub-prime mortgages is creating a time bomb in Britain's own market for loans to borrowers with imperfect credit records.'

The Times 24th November 2007

the word subprime has been splashed across newspaper headlines … synonymous with a credit crisis that has impacted on financial institutions across the globe

Following in the footsteps of metrosexual, truthiness and pluto, the new adjective subprime has the honour of being voted 2007's 'Word of the Year' by members of the American Dialect Society. A prestigious group of linguistic scholars and professionals, the American Dialect Society is famed for its annual vote on the most important word in public discussion, and frequently criticized for its choice of 'obscure' expressions. No such criticism could be levelled at the Society this time however, as the word subprime has been splashed across newspaper headlines throughout the year, synonymous with a credit crisis that has impacted on financial institutions across the globe.

The adjective subprime basically describes a risky loan, mortgage or other investment. Its typical collocates therefore include words such as borrower, lender, loan, lending and mortgage. Subprime lending is the practice of giving loans at higher interest rates to borrowers with a poor credit history. It therefore represents a risky enterprise for both borrowers and lenders – borrowers pay more, lenders potentially lose money to clients with dubious financial circumstances who can't always afford the loan in the first place.

In the United States, borrowers are often classified as subprime (i.e.'risky') or prime (i.e. 'best, without risk') based on their respective credit scores.

Subprime lending is highly controversial. Whilst proponents argue that it extends credit to people who otherwise wouldn't have access to mortgages, opponents allege that it encourages predatory lending, i.e. lending to borrowers who could never meet the terms of loans, so they consequently have their homes or property repossessed.

Throughout 2007 and early 2008, the adjective subprime has also frequently modified words like crisis and problem. This is because it has been at the centre of a global financial crisis which began in the US housing market, caused by a growing number of subprime borrowers defaulting on payments. The knock-on effect was a significant and unexpected loss of funds across a wide range of major banks and financial institutions, causing problems for key investors and sending shockwaves throughout the global stock market.

Background – subprime

The adjective subprime is of course formed by affixation of the prefix sub-, meaning 'below, at a lower level or rank' (c.f. substandard), and adjective prime meaning 'best'. Though used in financial contexts for some time, subprime is still not widely recorded in non-specialist dictionaries. The recent financial crisis has catapulted it into the limelight however, and it is beginning to pop up as a more general euphemism for 'dodgy/risky', for example:

'… the Tory leader told the Commons the prime minister had delivered a "subprime deal for a subprime minister".'

politics.co.uk 23rd January 2008

by Kerry Maxwell, author of Brave New Words

This article was first published on 3rd March 2008.

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