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What is a NINJA Loan?

What is a NINJA Loan Works

Risks of NINJA Loans

NINJA Loans and the Financial Crisis

FAQs

The Bottom Line

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NINJA Loan: History, Definition, and Current Availability

By Julia Kagan

Updated August 11, 2022

Review by Julius Mansa

What Is an NINJA Loan?

A NINJA loan is the slang word for an unrequited loan given to a borrower with little or no effort from the lender to confirm the ability of the borrower to repay. It stands for «no income, no job, and no assets.» Although most lenders ask loan applicants to present proof that they have a steady flow of income or adequate collateral but the NINJA loan doesn’t require that verification process.

NINJA loans were more prevalent prior to the 2008 financial crisis. After the financial crisis, the U.S. government issued new regulations to improve standard lending practices across the credit market. This included tightening requirements to grant loans. In the present, NINJA loans are rare even if they are not completely extinct.

Important Takeaways

A NINJA (no income, no job, or assets) loan is a term that refers to a loan given to a borrower who may not be able to pay back the loan.

A NINJA loan is granted with no verification of a borrower’s assets.

NINJA loans largely disappeared after the U.S. government issued new regulations to improve standard lending practices following the financial crisis of 2008.

Some NINJA loans offer attractive low interest rates which rise in time.

They were very popular due to the fact that they could be obtained quickly and without having to provide documentation.

How a NINJA loan works

Financial institutions that provide NINJA loans base their decision on a borrower’s credit score without a confirmation of income or assets, such like income tax returns and pay stubs. statements from brokerages and banks. Credit score over a certain threshold to be eligible. Since NINJA loans are generally provided by subprime lenders their requirements for credit scores could be lower than that of conventional lenders, including major banks.

NINJA loans are structured with varying terms. Some may offer an attractively low interest rate at first, which grows over time. Borrowers are required to repay the debt according to the timeframe they have set. In the event of non-payment, it could lead the lender to take legal actions to collect the debt, resulting in a drop in the credit score of the borrower and the ability to get another loans in the future.

Risks associated with NINJA Loans

Because NINJA loans require so little documentation compared, for instance the traditional home mortgage or business loans the application can be swiftly processed. The speed of processing attracts a lot of customers, especially those who don’t have the usual documents or do not want to submit the required documentation.

The loans could, however, be extremely risky for the lender and the borrower. Since NINJA loans require no evidence that they are collateral-backed, they aren’t secured by any assets a lender could seize if the borrower falls behind on the loan.

NINJA loans can be risky for the borrower in a way that is not restricted by the traditionally conservative banking underwriting procedures that tend to protect both parties from danger. Borrowers may be encouraged to make larger loans than they could reasonably anticipate repaying, particularly if they focus on a low introductory interest rate, which will increase in the future.

NINJA loans are extremely dangerous for both lenders and borrowers alike.

NINJA Loans and the Financial Crisis

After a high level of loan defaults contributed to the financial meltdown of 2008, and a crash in the value of real estate across the country, the federal government introduced stricter guidelines for lenders, making loans more closely controlled than they had been before and mortgage loans having the most impact.1

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act created new lending standards in addition to loan applications. The new rules largely did away with NINJA loans and required lenders to gather more complete details about potential borrowers, including their credit scores as well as evidence of their employment as well as other income sources.

The proliferation of NINJA loans was a major to the 2007 and 2008 Financial Crisis and housing bubble. A research paper estimates that such loans accounted for 100 billion dollars, or 20% of total losses, as reported during the crisis.2

Do NINJA Loans Still available?

NINJA loans are largely no longer to exist throughout the United States due to tighter lending regulations that were put in place following the financial crisis of 2008-09.

Why did banks offer NINJA Loans?

In the years prior to the economic crisis, banks began to profit from writing home loans. NINJA loans were originally created for those who had trouble producing the necessary paperwork to verify their income and assets, for example, previous tax returns as they earned their money from sources that aren’t traditional and where documents aren’t available for example, tips or a personal company. The lenders often offered these loans to borrowers based solely on their credit scores without any other proof of the borrower’s capacity to pay.

What are the other terms used that are used for NINJA Loans?

NINJA loans (no income (no job, not having assets) are a kind of low/no documentation (low/no documents) loan, also known as «liar loans.»

The Bottom Line

In the early to mid-2000s, NINJA loans (which were based on no documentation to prove the existence of a job, income or assets) were partly responsible for the housing bubble and subsequent collapse , which coincided with the 2008-09 financial crisis and the ensuing Great Recession. Since then new regulations have stamped out this practice.

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