Ninja Loan

Ninja loan is a loan or mortgage given to a person who has no income, no job, and no assets. Here, ninja or NINJA is short for "No Income, No Job or Assets". The phrase was coined by HCL Finance as a name for one of their finance products. They were especially prominent during the United States housing bubble of the 2000s but have gained wider notoriety due to the sub-prime mortgage crisis in July/August 2007 as a prime example of poor lending practices.

Traditionally, lenders wished to know something of the borrowers' background - their jobs, their wealth and so forth. In an age of perennially rising home prices, these tedious details could be dispensed with. It is not as though the absurd excesses of the mortgage market were some big secret. Lenders brazenly advertised "low-doc" and "no-doc" loans that required borrowers to provide little or no documentation of their ability to repay. As they pushed "ninja" loans, requiring no income, job or assets, "low-doc" and "no-doc" loans have proliferated.

A ninja loan is considered to be a type of sub-prime lending, often found in the mortgage market. While the specifics of any ninja loan can change, most offer the lender a low initial rate, which is then increased after a few periods of payment. The borrower is hoping for the value of their property to appreciate significantly, allowing them to repay the loan with the newly found equity. However, when the property does not appreciate, many borrowers cannot make the repayment. This makes the ninja loan a very risky proposition for lenders.

In 2004, when US interest rates were 1%, there were few problems in the sub-prime market. However, since then the Federal Reserve Bank has raised rates 17 times in a row. Defaults on ninja loans have become common and some sub-prime lenders have been driven to bankruptcy as a result.

The sub-prime difficulties are affecting the global financial system because these ninja loans do not just sit on US banks' books. They are sliced up, repackaged and sold on to hedge funds, pension funds and other investors around the world. This is why equity markets have taken such a battering recently. It is not too hard to understand why 70% of the country does not want to bailout either the homeowners, the lenders or the funds that bought this junk.