Subprime Lending

Topics: Subprime mortgage crisis, Mortgage, Subprime lending Pages: 4 (1597 words) Published: August 26, 2013
Subprime Mortgage Crisis

The subprime mortgage crisis is a financial and real estate crisis that has been going on in the United States between the years 2007 and 2010. It began because of a drastic increase in mortgage delinquencies, foreclosures, failures in credit default swaps, saturation of the debt and real estate markets and reverse trading. All these parameters had an adverse effect on the financial markets and banks all over the world. In recent times, The United States witnessed a rise in the number of adjustable-rate mortgages. Roughly, 80% of the mortgages that were issued to numerous subprime borrowers were of this kind. After the peak of the United States’ real estate market in the year 2006, real estate prices began to crash and their refinancing became more and more complex. The rate of mortgage delinquencies grew drastically because adjustable-rate mortgages were resetting at higher rates. Subprime mortgages and securities, which were mainly owned by companies, began losing their value and as a result, numerous U.S. Government sponsored firms and banks witnessed a decline in capital. According to the United States Federal Deposit Insurance Corporation, the term subprime talks about individual borrowers’ credit characteristics. Subprime borrowers are those borrowers that have weakened their credit histories, which comprise of important issues such as bankruptcies, charge-offs, judgments and payment delinquencies. They might also portray reduced capacity of loan repayment and debt-to-income ratios or any such parameters that may cover borrowers with incomplete histories of credit. Subprime loans are nothing but loans given to borrowers who portray one or more of the above mentioned characteristics at the point of purchase. If the borrower displays any delinquency while making mortgage payments, the lender can take complete possession of the property via foreclosure. Apparently, the chief cause of the subprime mortgage crisis is the United States...
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