What is a Ninja Loan?

The Ninja loan is a loose acronym from No Income, No Job, No Assets, and the term also represents something of a play on words. Due to the fact that a ninja loan is likely to be defaulted upon, the borrower is described as like a ninja because he or she can so easily disappear, especially when it comes to making payments. Use of the ninja loan is highly criticized as a dangerous lending practice and can be in part held responsible for the subprime mortgage crisis of 2007 and the collapse of financial markets in 2008.

In a scenario where a ninja loan is offered, and they are becoming considerably less common since the economic downturn of 2008, the borrower really has few means to pay back money owed, but on applications these loans may have “looked” okay. Truly what happened with many ninja loan was that either borrowers or brokers purposefully falsified information about jobs, income or assets. Alternately lenders merely took the word of applicants without verifying their information. The fault was not only on the side of applicants, many of whom submitted true applications but also on the lenders who approved loans in a reckless fashion.

Moreover, many ninja loan types were sold to companies like Fannie Mae and Freddie Mac, which significantly contributed to the mortgage crisis, and some were part of collateralized debt obligations that were invested in by people from companies like Bear Sterns, AIG and Lehman brothers. Though the NINJA loan alone can’t be held solely responsible for collapse of economic markets and the housing industry, which has resonated through much of the world, it was certainly one lending practice that created huge problems and shined light on irresponsible actions on the part of lenders.

In light of this crisis though, some companies have created NINJA loans to help bail out other companies in trouble. This was one intent of the huge economic bailout packaged passed in late 2008 in the US. Other lenders have responded to the crisis by exerting extreme caution, which means double-checking all information submitted by loan applicants and raising requirements for things like “good” credit scores.

One of the reasons that NINJA loans became popular was because they were loaned at a subprime rate. This meant borrowers would pay far more interest to pay back loans, which could have added significant profit to lenders. Instead, though, lenders did not profit by lack of proper screening of applicants, and they loaned money to people who were in no position to repay loans. History may someday view the NINJA loan as one of the least responsible acts of the lending industry in the late 20th and early 21st century.