Sub prime crisis are related to banks lending money to sub prime borrowers. These loans never fulfil the prime lending guidelines leading to the crisis. Sub prime crisis does not mean that banks have no money to lend; it cannot be characterized as over lending but lending without following the rules and regulations. Sub prime crisis started to increase in the year 2004 when the banks were unable to recover the loans given to customers. Most of these customers were high risk borrowers who would have never qualified for normal mortgage procedures. Apart from lending money many banks have offered incentives to these customers often referred to honeymoon conditions.

The sub-prime crisis was as high as 21% in the year 2004 and has been increasing every since. To benefit from the housing explosion people started to refinance their houses at a lower interest rate called second mortgages. Banks predicted that, with the flourishing housing industry, house rates would increase substantially and offered loans to sub prime borrowers. But with the global scenario falling, real estate market has taken a beating. Property prices have shrunk causing difficulty in recovering loans. Now the borrower has to pay even higher interest rate as the Reserve bank keeps increasing their interest rates very often to make the situation even bad. To make the sub prime crisis scenario still worse, foreclosures are mounting day by day making it a more serious problem for the banks to face. More than a hundred banks have filed bankruptcy due to foreclosures. This has threatened the housing industry and the economy in general.

Sub prime crisis has hit the markets very hard; people who have bought from the market recently found that their investments are depreciating at a fast rate. Banks intervened to take control of the situation. Strict rules have since been formulated to maintain credit guidelines. As a result of such hard rules small time business establishments are not getting loans due to the unwillingness of the bank to show any favour. The best solution to the problem would be to set up rescue funds for those facing difficulty due to layoffs and other physical disablement. A borrower and lender should come to terms when new rules are formulated to solve the problem amicably.

Sub prime crisis could be sought out if more money is pushed into the market, this could reduce the hesitancy from a bank to lend loans. Of course increasing money flow means inflation, this again will lead to sub prime lending. The challenge is to ensure a healthy median. Banks may give a sign of relief by this policy, but the financial system as a whole would be thrown out of track. To avoid sub prime crisis always deal with only one bank for loans. Never accept solicitation without going through minute details. Check for the best lender or financial institution online and in local newspapers. There are some very good sites available to accomplish your requirements. This allows scanning through a number of establishments before settling for one. By doing this you can avoid being cheated or drawn into any unwanted circumstances. Your eligibility to acquire loans may be identified through these means to avoid sub prime crisis.