Foreclosures, Subprime mortgage crisis and
what caused it? There seems to be some confusion on here about the foreclosures and what is causing them. It had nothing to do with Bill Clinton as some think. The subprime mortgage crisis is a current economic problem characterized by contracted liquidity in the global credit markets and banking system. An undervaluation of real risk in the subprime market ultimately resulted in cascades and ripple effects affecting the world economy generally.The crisis began with the bursting of the US housing bubble[3][4] and high default rates on "subprime" and adjustable rate mortgages (ARM). Loan incentives, such as easy initial terms, in conjunction with an acceleration in rising housing prices encouraged borrowers to assume difficult mortgages on the belief they would be able to quickly refinance at more favorable terms. However, once housing prices started to drop moderately in 2006–2007 in many parts of the U.S., refinancing became more difficult. Defaults and foreclosure activity increased dramatically, as easy initial terms expired, home prices failed to go up as anticipated, and ARM interest rates reset higher.About 46% of Hispanics and 55% of African Americans who obtained mortgages in 2005 got higher-cost loans compared with about 17% of whites and Asians, according to Federal Reserve data. Other studies indicate they would have qualified for lower-rate loans.
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09-06-2008, 10:19 AM
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