What Caused the Subprime Mortgage Crisis?
The subprime mortgage crisis began in 2006 as a result of the sharp rise in foreclosures in the United States. Subprime mortgages are mortgages issued to people who would not typically qualify for standard mortgages. Some of these mortgages are adjustable rate mortgages in which mortgage payments go up or down based on interest rates. Rising interest rates, increasing monthly payments, and property value declines that occurred after the U.S. real estate market topped out, left many homeowners unable or unwilling to meet financial commitments and lenders without a means to recoup their losses. The sharp rise in foreclosures caused several major subprime mortgage lenders to shut down or file for bankruptcy. This led to the collapse of stock prices for many companies in the subprime mortgage industry as well as declines in stock prices for some large lenders. Many observers believe this has resulted in a severe credit crunch, threatening the solvency of many financial institutions. Invest
The subprime mortgage crisis is an ongoing event likely to affect buyers who purchased homes in the early 2000s for a long time. These effects will translate to changes in the housing market, consumer spending, changes in lending practices, and perhaps, revamping of the home loan system. What is meant by the subprime mortgage crisis is that many home loans taken out during a housing bubble occurring on the two US Coasts, from 2000-2005, were given at a subprime rate, and have now led to extensive foreclosures on home loans, and people having to leave their homes because they can’t afford the payments. The housing bubble, meant that for a time, houses sharply increased in value and consumers often borrowed at a subprime (less than the lowest) rate believing that the price of their homes would rise and they could thus refinance for lower payments. Many people didn’t just refinance for lower payments but also for consumer spending. Inflation of house prices meant people in possession of a
Who’s To Blame For Mortgage Morass? by Broderick Perkins (Sept. 11, 2007) When a Fortune/CNNMoney.com writer recently opined about those responsible for the mortgage morass, the Feds and Wall Street were at the top of the list, but mortgage brokers and lenders weren’t far behind. FREE Agent Online Powerhouse Kit including a FREE business consultation According to Peter Eavis, there’s plenty of blame to go around for subprime mortgage foreclosure-induced credit tightening and the resultant fallout that’s blanketing the housing market and spreading to the general economy. In “Subprime: Let The Finger-Pointing Begin!”, Eavis spreads the blame with a 1-to-5 finger-pointing scale, called the “Blame Factor,” where 1 pointing finger is little blame and 5 pointing fingers indicate the highest level of blame. Eavis isn’t your ordinary man-on-the-street-on-a-soapbox. Relatively new to Fortune, Eavis is a TheStreet.com alum who won a Gerald Loeb Award for his Fannie Mae coverage back in 2005 and
