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Subprime mortgages — also known as non-prime mortgages — are for borrowers with lower credit scores, typically below 600, that prevent them from being approved for conventional loans.
The American subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the 2007–2008 global financial crisis. The crisis led to a severe economic recession, with millions losing their jobs and many businesses going bankrupt.
The value of U.S. subprime mortgages was estimated at $1.3 trillion as of March 2007, [18] with over 7.5 million first-lien subprime mortgages outstanding. [19] Approximately 16% of subprime loans with adjustable rate mortgages (ARM) were 90-days delinquent or in foreclosure proceedings as of October 2007, roughly triple the rate of 2005. [20]
[2] These loans are characterized by higher interest rates, poor quality collateral, and less favorable terms in order to compensate for higher credit risk. [3] During the early to mid-2000s, many subprime loans were packaged into mortgage-backed securities (MBS) and ultimately defaulted, contributing to the financial crisis of 2007–2008. [4]
Private lenders pushed subprime mortgages to capitalize on this, aided by greater market power for mortgage originators and less market power for mortgage securitizers. [21] Subprime mortgages amounted to $35 billion (5% of total originations) in 1994, [ 140 ] 9% in 1996, [ 141 ] $160 billion (13%) in 1999, [ 140 ] and $600 billion (20%) in 2006.
Leading up to the collapse of the housing market that took place in 2007, Fannie Mae had backed subprime mortgages. Once the market collapsed, it lost millions in defaulted loans; the federal ...
The United States Housing and Economic Recovery Act of 2008 (commonly referred to as HERA) was designed primarily to address the subprime mortgage crisis.It authorized the Federal Housing Administration to guarantee up to $300 billion in new 30-year fixed rate mortgages for subprime borrowers if lenders wrote down principal loan balances to 90 percent of current appraisal value.
Bear Stearns pledged up to US$3.2 billion (~$4.53 billion in 2023) in loans on 22 June 2007 to bail out one of its hedge funds that was collapsing because of bad bets on subprime mortgages. [ 69 ] Peter Schiff , president of Euro Pacific Capital, argued that if the bonds in the Bear Stearns funds were auctioned on the open market, much weaker ...