Essay: Subprime Mortgage Crisis
Subprime mortgage crisis was the real cause of the worst financial crisis or better known as economic recession since the great depression of 1982. Subprime mortgage comprises of those borrowers who have a poor credit record meaning chances of defaulting their loans is high. Although the causes of this crisis started in 1999, the impact was clearly felt in 2007. Because of the risk involved in advancing this type of loans, lenders charge high interest rates thus making the loan facility very expensive.
The lenders who were advancing subprime mortgages were not ready to take responsibility thus when the interest rates were adjusted it became very difficult for borrowers to service their loans. By the year 2006 December, it was becoming clear that the real estate market was becoming a threat to the U. S economy. Hedge fund investments infiltrated the misery in the housing business to the stock market by March 2007. By August, the same year banks were not lending to one another for fear of being caught in the subprime mortgage crisis. This is when the Federal Reserve stepped to bring some liquidity and confidence in the market.