Guide Note

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.¹

Fast Facts

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 prime²
In 2008, the rate of home foreclosures skyrocketed and many lenders faced financial difficulty and bankruptcy

Mortgage Crisis Timeline

2005: The Federal Reserve increases borrowing costs to a federal funds rate of 5.25%³
2006: Higher interest rates cause increased demand on subprime loans
2007: Home sales experience a sustained downturn⁴
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."⁵
2008: In January, Countrywide is acquired by Bank of America
2008: Bear Stearns is acquired by JPMorgan

Categories

News | Financial Problems and Crises | Business and Finance | Mortgage Crisis | 2008 Economic Crisis

View Note History

Subprime Mortgage Crisis

The Mahalo Top 7

Wikipedia: Subprime Mortgage Crisis
Bloomberg.com: Special Report: Subprime Mortgage Meltdown
CNNMoney.com: Subprime blame game
Wikipedia: Subprime lending
60 Minutes: House Of Cards: The Mortgage Mess (January 27, 2008)
New York Times: Fed Shrugged as Subprime Crisis Spread (December 18, 2007)
YouTube: John Vogel Subprime Mess (Time 2:58)

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)

Subprime Mortgage Crisis Information

Santa Cruz Sentinel: Why America's Subprime Mess Reaches Around the World (April 13, 2008)
Investopedia: What is a subprime mortgage?
Wikipedia: Subprime lending
MtgProfessor.com: What Is a Sub-Prime Mortgage Lender?
BBC NEWS: Timeline: Sub-prime problems (August 31, 2007)

Subprime Mortgage Crisis Background

CNNMoney: Mortgage Meltdown 2007 Archived Articles
CNNMoney.com: Housing starts, building permits both at 10-year low (August 20, 2007)
Yahoo! Finance: Fed Approves Cut in Discount Loan Rate (August 17, 2007)
Washington Post: Banks Add More Funds To Stabilize Markets (August 11, 2007)
BBC NEWS: World shares fall on credit fears (August 10, 2007)
FT.com: Subprime crisis could spread to EU, Slovenian bank chief warns (August 7, 2007)
New York Times: Top Lender Sees Mortgage Woes for ‘Good’ Risks (July 25, 2007)
CNN.com: Looking for ways out of the subprime mortgage crisis (March 30, 2007)
U.S. Senate Committee on Banking, Housing, and Urban Affairs (March 22, 2007)
New York Times: Re-Refinancing, and Putting Off Mortgage Pain (July 23, 2006)
MarketWatch: A house should not be your retirement piggy bank (July 19, 2006)
The Weekly Standard: Housing Bubble Trouble (April 10, 2006)

Subprime Mortgage Crisis Blogs and Commentary

The New York Times: The Unending Allure of the Free Lunch (February 10, 2008)
New York Times: Opinion: The Loan Crisis Wasn’t an Accident (December 23, 2007)
Guardian Unlimited: Beware Those Who Would Bail Us Out of This Chaos (December 16, 2007)
Newsday.com: Editorial: Bush's Subpar Subprime Rescue Plan (December 9, 2007)
Los Angeles Times: Symptoms of an Economic Depression (December 9, 2007)
Christian Science Monitor: Housing: A Crisis with Staying Power (December 11, 2007)
The Liberal Doomsayer: Sub-Prime Time
BlownMortgage.com: Ohhh..You Mean it's Not Just a Subprime Problem??
Beat The Press: Bailing Out the Mortgage Market
MF Blog: Subprime mortgage crisis - Alternative thoughts
Lansner on Real Estate: Commercial real estate ‘party is over’
Democracy Now!: Minorities Hit Hardest by Subprime Mortgage Crisis (November 29, 2007)
MarketWatch: As Financial Crisis and Panic Spread, Opportunity Begins to Knock (November 8, 2007)

Related Searches

Mortgages | High-Risk Mortgages | Housing Bubble | Subprime Mortgage Bailout | Countrywide Foreclosures | Citigroup Crisis | How to Become a Real Estate Agent | National City Corporation