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Subprime Essay

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Below is an essay on "Subprime" from Anti Essays, your source for research papers, essays, and term paper examples.

The financial crisis first began with the subprime market. Subprime mortgages are issued to buyers who are considered at high risk. They may be less able to pay back their debt, and may have a chance of defaulting on their loans. Lenders usually compensate for high risk mortgages by raising interest rates. Within the past decade, subprime mortgage lending has grown immensely, partly because of the increase in secondary mortgages. A high interest rate loan for at risk people was the start of the problem. Usually, lenders hold mortgages on record until it has been completely paid off. However, changes in laws allowed lenders to sell mortgages more effortlessly (Bernanke). This caused many financial institutions such as Fannie Mae and Freddie Mac to increase subprime lending. High risk lending expanded throughout the US because of competitive pressures. Many institutions also began predatory lending habits to borrowers who otherwise should not have been chosen. The United States housing bubble also increased the amount of subprime mortgages being handed out. As the housing market began to boom, average home prices rose as interest rates fell. Many homeowners refinanced their homes at lower rates thinking home value would stay the same or go up even further (Subprime). As this was happening, Americans began to spend and borrow more on credit. Eventually, house prices leveled off and soon began to fall. People could not afford to pay back their credit loans anymore. Many borrowers began to default on their payments as interest rates started to rise. Countless homes were foreclosed, which caused a surplus in the housing market with a decline in prices. This further increased interest rates and lowered home values. Through the laws of supply and demand, peoples’ homes now cost significantly less than their mortgages, resulting in negative equity (Subprime).
Investment banks would diversify the risk of subprime lending by taking many loans and pooling them together....

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"Subprime". Anti Essays. 14 Dec. 2018


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Subprime. Anti Essays. Retrieved December 14, 2018, from the World Wide Web: http://snehaedu.com/free-essays/Subprime-62992.html