January 19, 2015
Subprime Mortgage Crisis Subprime mortgages are generally granted to borrowers who cannot obtain conventional mortgages due to insufficient or delinquent credit histories. These borrowers may be forced to take interest-only loan, which have lower monthly payment but are very difficult to pay off in the end. Problems with mortgage financing are the generally accepted cause of the financial meltdown that occurred between 2007 and 2008 (Gorton, 2009). The Subprime Mortgage Crisis, or "mortgage mess" or "mortgage meltdown," was caused by a precipitous rise in home foreclosures that started in 2006 and spiraled out of control in 2007 and 2008. The excessive use of subprime lending during the housing bubble caused an unprecedented foreclosure fallout, the effects of which caused credit markets as well as global and domestic stock markets to face a major financial crisis (Mayer, 2008). The goal of this paper is to address the subprime mortgage crisis, the effects prior to and after the crisis, and discuss who were the biggest players affected by this crisis. Finally, Team A will provide several concepts learned during the course of this class, which may help ensure that something similar does not happen again in the future.
The Housing Market Before and After the Crisis The housing market crash between 2006 and 2007 is considered the worst one in this country 's history. Home ownership rates in the U.S. had risen from 64% to an all time high of 69.2% between 1994 and 2004 (Watkins, 2015). By the beginning of 2006, house prices had reached unsustainable levels. As a result, demand waned and prices fell dramatically by the end of 2006 and through 2007. Prior to the subprime mortgage crisis, the housing market was booming due in large part to new loan instruments advertised by mortgage brokers to make homeownership more affordable. Once prices on homes reached a peak and demand dropped, the housing bubble
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