The mortgage crisis was enabled, if not exacerbated, by the fact that there were never concrete definitions for terms like “subprime” or “alt-A,” and thus little clarity among investors about what they were actually purchasing.
A subprime loan meant different things to different people. Though the category was broad, it began to take on a more pejorative meaning as losses on those loans escalated. New terms surfaced, like the less-judgmental “nonprime,” and the optimistic-sounding “near-prime.” But these labels weren’t any less subjective.
American Banker asked some linguistics experts to reflect on the utility of different prefixes to distinguish the quality of a loan.
“Certainly, the names were changed in part to get rid of some of the stink that the word ‘subprime’ had acquired,” said Grant Barrett, co-host of the national radio program “A Way With Words.” “But there's also basic marketing there. A lender could differentiate itself by coming up with a new word and so stand alone. It might also make un-savvy consumers less likely to realize that all these variations should be compared as apples to apples.”
Sophia Malamud, an assistant professor of language and linguistics at Brandeis University, broke it down this way:
“Sub is a scalar prefix which means ‘under a particular value on some scale,’ so ‘subprime’ means ‘lower than the established criteria for ‘prime.’”
On the other hand, the prefix “non,” Malamud said, “carries no immediate meaning of being below something on a scale.” However, “it has a connotation that the speaker was not in a position to use the term without ‘non,’” she said. “So ‘nonprime’ means, literally ‘other than prime.’” Essentially, the user of the term “nonprime” acknowledges the loan did not make the “prime” cut.
At the other end of the spectrum, using “super” in front of prime connotes that the loan is “above the established criteria for ‘prime,’” Malamud said.
In a online poll, just over half of respodents, or 53%, said boom-era terms like “subprime” and “alt-A” should be clarified with concrete definitions, while nearly a third, or 31%, said these terms should be abandoned, along with the pretense that tidy categories can describe complex products. Another 16% said these terms should be replaced with new ones.