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- Subprime is a type of loan for borrowers with low credit ratings
- Interest rates are higher because borrowers carry risk
- Usually given to those with a rating below 620
- Several types of subprime mortgage structures
- Most common is the Adjustable Rate Mortgage or ARM
- ARM offers a fixed interest rate
- Lenders freely granted these loans from 2004 to 2006 when lenders received profits and could charge above primeInvestopedia: What is a Subprime Mortgage?
- In 2008, the rate of home foreclosures skyrocketed and many lenders faced financial difficulty and bankruptcy
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The subprime mortgage crisis was the outcome of lenders making loans to borrowers who could not afford the home they purchased. Subprime loans are loans underwritten for borrowers that have a credit score lower than 620. Borrowers are offered a low "introductory" interest rate, which lasts two to three years. At the end of the introductory period, the rate on the loan increases. The result can lead to an increase in home foreclosures due to homeowners not being able to bare the cost of their mortgage payments.Investopedia: The Fuel That Fed The Subprime Meltdown
Mortgage Crisis Timeline
- 2005: The Federal Reserve increases borrowing costs to a federal funds rate of 5.25%MoneyCafe.com: Fed Funds Target Rate
- 2006: Higher interest rates cause increased demand on subprime loans
- 2007: Home sales experience a sustained downturnThe New York Times: Top Lender Sees Mortgage Woes for ‘Good’ Risks (July 25, 2007)
- 2007: In August, Countrywide Financial Corp. comes close to filing for a Chapter 11 bankruptcy, but is bailed out by Bank of America
- 2007: In September, Alan Greenspan states, "...the problem is that we've had a bubble in housing, and the bubble in housing essentially has roots, as I point out in the book, to the end of the Cold War, leaving aside all the economics that are involved."PBS: Greenspan Examines Federal Reserve, Mortgage Crunch(September 18, 2007)
- 2008: In January, Countrywide is acquired by Bank of America
- 2008: Bear Stearns is acquired by JPMorgan
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Subprime Mortgage Crisis Questions
Why did CDO bond raters think they could mix new wine with old wine and not corrupt the mix? 1 AnswerHope mixed with the kind of bone-brainedness that put us all in this mess in the first place! But really, there have always been a variety of mortgage products.... read more
What are some tips that you would give to a first time home buyer looking to get a mortgage? 6 AnswersI just bought a condo so I have some experience with mortgages. I would recommend keeping an eye on the rates over time. Sites like bankrate.com will show you... read more
What are some of the details of the Mortgage relief plan? 3 AnswersThe Associated Press released a brief article on some of the plan's highlights this morning (see link below). Some of these include: -"$2 billion in competitiv... read more
Which Banks are starting to offer Mortgage modification loans plans? 1 AnswerAlthough I'm not currently looking at loan modification, I am trying to refinance and take advantage of a lower interest rate. I've done a bit of research on th... read more
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Subprime Mortgage Crisis Recent News
- Topix: Subprime Mortgages
- National Post: Mortgage shakeup won't slow subprime crisis, economists fear (July 14, 2008)
- Industry Week: U.S. Mortgage Crisis Could Cost Banks $650 Billion (April 14, 2008)
- AFP: Credit Crisis Reveals America's Secret Financial Market (March 16, 2008)
- Salon.com: Another Day, Another $200 Billion Liquidity Injection (March 11, 2008)
- WSJ.com: Fed Races to Rescue Bear Stearns In Bid to Steady Financial System (March 16, 2008)
- Reuters: Housing Bust Means at Least 12 More Months of Pain (March 2, 2008)
- WSJ.com: Borrowers Abandon Mortgages As Prices Drop (February 29, 2008)
- Boston Herald: Mortgage Crisis Calls for Defense (February 25, 2008)
- Reuters: Ohio on Front Line in U.S. Housing Meltdown (February 25, 2008)
- CNNMoney: Foreclosures up 75 percent (January 29, 2008)
- The New York Times:Loan Reviewer Aiding Inquiry Into Big Banks (January 27, 2008)
- Guardian Unlimited: U.S. Money Markets Calm but... (January 20, 2008)
- Democracy Now: Report: Subprime Mortgage Crisis Causing African Americans to... (January 17, 2008)
- CNNMoney: Mortgage meltdown: Now the rents (January 16, 2008)
- New York Times:Giant Write-Down Is Seen for Merrill (January 11, 2008)
- CNN Money:Market Snapshot: U.S. Stocks Likely to Advance in First Week... (December 30, 2007)
- StarTribune.com: Economists See Trouble Ahead, But No Recession (December 29, 2007)
- Los Angeles Times:FDIC Chairwoman Is Right on the Money (December 23, 2007)
- Los Angeles Times:Ghosts of 2007 Will Linger On (December 21, 2007)
- Reuters: Single-Family Housing Starts Hit 16-year Low (December 18, 2007)
- Reuters: Sabic Says U.S. Mortgage Crisis Hit Chemical Demand (January 19, 2008)
- Rueters: Manhattan Defies U.S. Housing Nightmare, Sets Record (January 3, 2008)
- CNNMoney: Fed tightens up lending rules (December 18, 2007)
- WSJ.com: In Capital, Steps Weighed to Fix Mortgage Mess (December 15, 2007)
- Newsday.com: Trying to Cash in on the Mortgage Mess: Investing Or Gambling? (December 17, 2007)
- FT.com: Vote in Congress Backs Law to Help Subprime Victims (December 15, 2007)
- AFP: Banks Must Own Up to Subprime Losses to Keep Fear at Bay (December 16, 2007)
- Reuters: Senate Votes to Expand Mortgage Program (December 14, 2007)
- Reuters: Greenspan: Subprime Accident Waiting to Happen (December 12, 2007)
- Reuters: U.s. Regulators Welcome Subprime Plan, Urge Caution (December 9, 2007)
- Wall Street Journal: U.S. Mortgage Crisis Rivals S&L Meltdown (December 10, 2007)
- Bloomberg: Stocks Rally When U.S. Economy Slow to LessThan 1% (December 10, 2007)
- CNN Money: Ubs' Ospel Says to Remain Chairman, No Further Job Cuts Planned (December 10, 2007)
- Market Watch: Ubs to Take Further $10 Billion Subprime Write-Down (December 10, 2007)
- Guardian Unlimited: White House to Reveal Sub-Prime Rescue... (December 6, 2007)
- Bloomberg.com: Paulson Says Subprime Loan Plan to Ease Economy Risks (December 4, 2007)
- CNNMoney: Roadblock to a subprime solution (December 4, 2007)
- AZcentral.com: Subprime debacle traps even credit-worthy (December 4, 2007)
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