Why The Subprime Mortgage Crisis Happened You Have Go Back A Couple Of Years

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To properly understand how and why the subprime mortgage crisis happened you have to go back a couple of years. In the past, lenders would deny mortgage request to potential homebuyers with a below credit average history, looked for high payment loans, or paid small down payments. Families listed as High-risk could get small mortgages backed by the Federal housing administration and those with limited credit options had to rent. In this era, there were low mortgage foreclosure rates, and house prices and home construction correlated with income and mortgage interest rates.
Throughout the early to mid-2000s, lenders started funding mortgages by repackaging them into pools and selling them to investors. Lenders also started to sell high
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were unheard of. The sustainability of new mortgage products had not been properly tested and the risk of PMBS was not understood. This was mostly because loan quality was based on more traditional prime mortgages rather than subprime products.
When house prices finally peaked in 2004, refinancing mortgages and selling homes where no longer viable methods of settling mortgage debt. So, there was a rise in mortgage loss rates for both lenders and investors. One of the leading mortgage lenders, New Century Financial Corp, wound up filing for bankruptcy in April 2007, one of the first of many victims. Soon after various other subprime lenders had to close and several PMBS-backed securities had to be downgraded to high risk. The collapse of bond funded subprime mortgages prompted lenders to stop making risky nonprime mortgage sales. Demand for housing went down, lowered expectations brought the demand down further, and house prices fell so low that it became very difficult for troubled borrowers to sell their homes.
Why did you choose to study this factor?
It is important to look at the link between shifty mortgage lenders offering low quality mortgages to buyers who can’t afford them, because in hindsight, it is clear how impactful these decisions proved to be not only for the American economy but for the global economy as well. The business world is no stranger to “the butterfly effect” where isolated
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