Avoid Subprime Crisis is simple, if banks follow the guidelines with care. Many people mistake subprime crisis to over lending. But subprime crisis is actually not due to over lending but due to lending agencies and banks offering loans without satisfying the banking normal requirements. It is vital to check for credit ratings of the applicant before sanctioning a loan. Individuals who have poor credit score, marital discord, unemployed and medical issues preferred subprime loans. Subprime crisis started during 1996, when housing sector was flourishing and home owners used second mortgage to increase their spending.

The crisis has a great impact in many countries world wide. The prices of houses have depreciated drastically and people are left with higher loans to be repaid. Tips to avoid subprime crisis is the need of the hour.

• Loan types need to be modified and more money should be pumped into the market.
• Illness and layoff can contribute to the crisis. Therefore, rescue funds should be established for borrowers to tackle short-term problems.
• A bond fund should be formed to bring borrowers out of rising ARM’s
• Refinance loans for borrowers who are victims of subprime crisis

Subprime crisis can be controlled by dealing with one bank for your loan needs. Do not accept solicitations as they land you in trouble. Before applying for a loan, check if you are eligible for a loan from mainstream lenders. There are number of online lenders who offer this help free of cost. Credit rating agencies need to implement number of reforms to control the subprime crisis. Apart from framing reforms they should take care that these reforms are implemented properly with the help of investors, issuers and underwriters. Transparency should be the key factor with actual rating and the means that the ratings are used for.

The oversight of mortgage agencies by the states is currently not supervised and this leads to sanctioning loans to unqualified borrowers. They should properly enforce licensing requirements to improve the quality of such mortgage originations. The financial institutions have poor risk management practices leading to the subprime crisis. One of the most startling revelations is that the financial institutes are not in a position to estimate their exposure to losses. They are vulnerable to high risk and liquidity problems with the falling credit conditions. In order to avoid this, an improved management information system needs to be put in place. Information can be made available quickly and easily through this. Incentives should be given to follow guidelines and never to ignore them. They should be able to meet liquidity and capital standards that are firm to allow the financial establishments to survive during crisis too.

Three factors need to be considered, millions of individuals may stand to lose their property due to higher mortgage payment, huge losses will be incurred on investments that are backed by mortgage, the credit guidelines that are required to offer mortgages and appraisal of the financial instruments should be put in place to avoid subprime crisis.