"Keep your eye on the economy, it's happening all over. Bad debts are going to increase some more just as they are increasing now. Unfortunately all our economies are reliant on the United States, it's already started happening in Australia.. I don't know about India."
A recent comment from a woman who's been in the financial & banking for more than a decade.
What's happened in the US?
Mortgages, loan of money for larger amounts. Bank's security being either the property that was purchased with the money borrowed or another property/land- either a home or a company, belonging to the borrower.
Before a loan is approved, banks normally value the security and approve loan amounts lesser than the value of the property.
As an example:
Property value: 200$
Loan Approved: 150$
If there's a narrow margin between the value of the property and the loan amount, perhaps because the person servicing the loan is earning well, banks require property insurance to be taken out as additional security for the bank.
Lax lending habits (no proper income verification, people in unsteady jobs) caused by increased competition within the sub prime lending sector (sub prime referring to customers who would normally not be able to get loans through proper banks) on the part of