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When Did Subprime Lending Start

When did subprime lending start? It all depends on how your define subprime lending. Loans to less than qualified borrowers have been around since man discovered credit.

When did subprime lending start? The answer depends on your definition of subprime lending. Here is why. Ever since man has discovered that he can make a profit by lending money, there has been a subprime market. People have always wanted or needed more than they could afford. The country doctor who was paid with produce and livestock when his clients did not have cash could be considered a subprime system.

If you are looking for a more recent definition, the lending practices that we see today are definitely a modern occurrence that dates back to banking deregulation in 1980. However as far back as pre revolutionary America there has been a subprime market in the US. Back then it was indentured servants. Then it changed and as immigrants entered the US and the Civil War ended slavery you had specialized banks spring up that catered to a class of people who were in need of banking services but were not part of mainstream America.

For example after the Civil War, Freedman's Bank offered banking to former slaves. Some of these banking records are the first records of the ancestors of current African Americans. In New York City, Emigrant Bank catered to the Jewish Immigrant community. Both of these intuitions helped a class of individuals that were not able to bank via common channels. They opened doors to financial freedom for many of their patrons.

Out west, during the gold rush many banks sprang up as gold turned empty space into thriving towns almost overnight. There was plenty of subprime lending going on then too. Many people bought supplies on credit hoping to make it big. This held true for many going west over the Oregon trail as well. The subprime market has truly been a part of American culture.

Even living beyond your means is not a modern lifestyle. Both Thomas Jefferson and John Adams died in hock. Banks did not have liens on their homes, private lenders did. John Adams found out that being the first Vice President did not offer a tremendous salary. Thomas Jefferson continued to build a university that he could not afford.

So now were are in the year 1980. Banking has been deregulated and what we now call subprime loans are completely legal. The ARM (adjustable rate mortgage), balloon (large payment at the end of a loan) , and other non-traditional mortgages are actually "bridge loans" from days gone by. These loans were used by well qualified buyers to cover a real estate or other purchase while a major asset was being sold.

Mostly they were used for real estate as a borrower would buy a home prior to selling the old house. Once banking became deregulated, a number of lenders saw the profit potential of these loans if they offered them to borrowers with questionable ability to pay. As the real estate market boomed in many areas, these loan became more popular with borrowers who wanted to build wealth. Then as now, it backfired on many. Here we are in the year 2008 and history is repeating itself all over again.

This is when and how subprime lending started. Is there an exact answer to the question when did subprime lending start? Not really, it all depends on what you consider subprime.