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Lack of escrow fund and sub-prime lending risk

Dipan — Mon, 08 Sep 2008 13:37:09 +0000

Sub-prime mortgage market is basically all about lending to persons with limited borrowing history or having not-so-good quality asset. Here, as borrowers cannot submit better asset for mortgage or they do not have good steady income or they do not have sufficient repayment history, accept higher interest cost for borrowed fund.

This is a high-risk high-margin business for lenders. Risky because off uncertainty regarding repayment of loan and seriously profitable since lenders do charge much above their normal prime lending rate. But like any risky business they need to manage their uncertainty.

When any borrower buys any property with fund, lent under sub-prime mortgage rate, they accept some liabilities. Firstly, he needs to service debt regularly, i.e., need to pay interest and a part of principal in regular intervals. Secondly, need to pay insurance charges, against which he enjoys insurance coverage in case of accidental loss. Thirdly, need to pay property taxes.

Default in any of the above three payments, brings in troubles. If borrower fails to pay insurance premium, he loses the coverage, which is a serious problem; if he defaults in paying property tax, tax authority can lien his property and sell it off to realize dues.

To insure against these risks, lenders have the option to build an escrow account out off lent fund. In case of default from borrowers’ side, lender can use the fund in escrow account to pay these dues off. Though, escrow account is not mandatory in sub-prime lending market till now, it has the capacity to insure against sudden defaults, which is quite expected from any sub-prime borrowers.

Financial regulator and Congress probe has revealed that absence of escrow account is major reason for recent crash in sub-prime mortgage market. Lack of proper escrow fund had aggravated the situation, which was staged following a series of payment default.

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Guru through a different glass

Dipan — Mon, 07 Jan 2008 05:09:54 +0000

This was the second time I saw the movie “Guru”. Many people say, its on the life of famous industrialist Dhirubhai Ambani. Despite the official denial from the director-producers’ front I must say its the cinema that I enjoyed both the...
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Simona's laws of local blogging

Dipan — Fri, 29 Jun 2007 12:59:04 +0000

Dryden, New York is a small town near Ithaca. Four years ago, local resident Simon St. Laurent began chronicling the civic life of the town on a blog called Living in Dryden. In a 2004 profile the Ithaca Journal wrote:

St. Laurent can be seen, notebook...
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Social network analysis in Facebook

Dipan — Wed, 27 Jun 2007 21:42:55 +0000

From time to time I like to dabble in social network analysis. Now that Facebook has opened itself up to programmatic access, I thought I’d do some spelunking to see what I could learn. Here are a couple of questions I’d like to answer about ...
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Accounting for page popularity

Dipan — Tue, 26 Jun 2007 16:02:58 +0000

Today Lauren Weinstein draws attention to “a fascinating and apparently singular page on Google that you’ve probably never seen.” He’s right, I hadn’t, and apparently not many others have either. The page, http://www.google....
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A conversation with John Willinsky about public participation in the creation of knowledge

Dipan — Mon, 25 Jun 2007 17:10:16 +0000

It was a great pleasure to speak with John Willinsky for this week’s ITConversations show. We refer to another podcast I mentioned here. As much as I hope people will listen to this week’s show, I think it’s even more important to hear ...
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Mashing up ITConversations and SIConversations

Dipan — Sat, 23 Jun 2007 06:58:42 +0000

Although my own weekly podcast appears on the ITConversations channel of the Gigavox network, lately I find myself listening more often to our sister channel, Social Innovation Conversations. And I’ve started to wonder: Why are these two different ...
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RESTful Live Contacts for Internet-scale social networking

Dipan — Thu, 21 Jun 2007 13:53:59 +0000

It’s been an interesting couple of weeks for folks who care about RESTful web services. Dare Obasanjo kicked things off with a couple of items about the Atom Publishing Protocol (APP) and Google’s use of it for its GData project. Tim Bray bris...
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Sitemaps, segmentation, and streaming

Dipan — Tue, 19 Jun 2007 14:12:41 +0000

The audio accompaniment for yesterday’s exercise hour was Tom Raftery’s interview with Brad Abrams, group program manager for Silverlight. I mention it for three reasons.

First, it’s a nice comprehensive overview of the history and mi...
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Screencasting for public speakers

Dipan — Tue, 19 Jun 2007 12:16:56 +0000

While I’m back on the topic of screencasting, I’ve been meaning to mention another important use of the medium. Recently a colleague reported severe trouble trying to present demos that rely on a live connection to the Internet. My solution i...
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