Subprime Borrowers A Financial And Real Estate Crisis

The mortgage meltdown is a financial and real estate crisis that began in the United States as a result of mortgage defaults and foreclosures which eventually affected financial institutions across the globe. In an effort to control the recession in 2001, the Federal Reserve of the U.S. lowered the Federal funds rate from 6.5% to 1.75%, which in turn stimulated liquidity in the U.S. economy (Singh, 2008). Coupled with the fact that home prices were steadily rising and an increase in loan incentives with easy approval terms, many subprime borrowers were able to realize their dream of home ownership by taking advantage of relaxed loan requirements. Subprime borrowers are characterized as individuals that have credit issues and are†¦show more content†¦(Konczal and Reed, 2016). There are many factors that led to the collapse, but ultimately the large decline in home prices following the collapse was large to blame. The borrowers were not the only ones feeling the heat of their poor financial decisions. The securities that were backed by the subprime mortgages lost their value causing financial firms and investors everywhere to feel the pressures. In early 2007, reportedly over 25 subprime lenders filed for bankruptcy, and there was more than $1 trillion invested in securities owned by financial firms and hedge funds (Singh, 2008). It was not long before governments worldwide became involved in what would ultimately lead to the U.S. recession. *******KYLE******** The meltdown of the mortgage system caused a substantial impact on so many financial institutions but also placed hundreds of thousands of people in very difficult financial situations. In early 2008, it was a sellers’ market by far with houses selling for double and even triple what people had pay for homes only a few short years prior. When the housing market bubble finally popped in August of 2008, home prices plummeted along with the entire stock market. New homeowners soon found they were upside down in their home loans and owed up to double of what their home was even worth at the time. If you aren’t sure of how the mortgage system works, what happensShow MoreRelatedSubprime and Adjustable Mortgages1156 Words   |  5 PagesSometimes, when people buy a home for first time, they usually get subprime mortgage rates. Lenders grant these types of rates are to borrowers whom their credit history is not sufficient to get a typical mortgage. Sometimes, these borrow ers have bad or even insufficient credit history. Subprime mortgages regularly offer loans that are interest only. These loans, that are â€Å"interest-only,† are easier for buyers to afford. 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