From: Nick 
Newsgroups: uk.finance
Subject: Re: Credit Bubble finally bursts
Date: Mon, 20 Aug 2007 14:18:43 +0100
Cancel-Lock: sha1:fTn8Oomd9vtiIOIeCsgOZM2Fd2c=
Bytes: 3362

Foobar wrote:
> On Aug 20, 4:51 am, Nick  wrote:
>> Foobar wrote:
>>> On Aug 17, 9:59 am, M Holmes  wrote:
>>>> Foobar  wrote:
>>>>> I didn't know that equity was a factor in prime vs. sub-prime.  It may
>>>>> affect PMI and it may affect the mortgage rate one can get, but isn't
>>>>> sub-prime based on credit history???
>>>> It's based also on the size of deposit you can put down. In the US, I
>>>> think prime typically requires 20% deposit.
>>>> FoFP
>>>> --
>>>> Party, like it's 1929!
>>> Nope.  Prime/Subprime has little to do with the downpayment.    The
>>> downpayment does affect interst rate (risk by the lender), but 5% down
>>> doesn't throw one into the sub-prime market.  Failing to pay past
>>> debts does.  Prime/Sub-prime is dictated by past credit history not
>>> downpayment.
>>> IOW, with good credit, I can buy a home with 5% down for say 6.5%
>>> Someone with bad credit and 40% down, may be lucky to score a 8.5%
>>> interset rate.
>> But I thought in the US the mortgage security was the property. In the
>> case of default the Mortgage company could reclaim the property but had
>> no further claim against the borrower.
>>
>> So this would mean that the risk to the mortgage company was very much
>> aligned with the risk that the property would be worth less than the out
>> standing mortgage.
>>
>> Hence I would have thought that the size of the deposit was the major
>> determining factor.
>>
>> Have I misunderstood something?- Hide quoted text -
>>
>> - Show quoted text -
> 
>> But I thought in the US the mortgage security was the property. In the
>> case of default the Mortgage company could reclaim the property but had
>> no further claim against the borrower.
> 
> Not true. 

See my reply to Tim. It appears it is true in some states and not widely 
  used even when available.