The theory that dates …show more content…
Most scholars agree that this was a major, if not the largest, factor that resulted in the mortgage crisis. The primary method of issuing a loan was the subprime loan. In the context of the mortgage crisis, a subprime loan is a mortgage given to a person with bad credit, allowing them to buy a house when they wouldn 't be able to otherwise(Bond 2002, p. 34). Subprime loans themselves are not bad, they were just issued and failed in a larger scale economic crash. Something that actually contributed to the mortgage crisis was predatory lending. You may have heard of predatory lending, or seen examples of it every day. You most likely hear commercials for car lots, claiming to finance any car to a person with any or no credit. This is a late example of predatory lending, but is now regulated by the federal government. Predatory lending is "targeting the elderly, people of low income, minorities, and individuals with limited understanding of financial transactions" (Bond 2002, p. 34). Predatory lending was also practiced on more well off groups during the mortgage crisis. One shadow bank, named Fannie Mae by the government, “estimated that up to 50% of the subprime refinanced loans could have been prime loans--saving the borrowers thousands of dollars in fees and interest rates” (Christie 2007a, b). Predatory lending to specific groups is not to try and support the neediest in the economy, it is to scam the underprivileged for profit. It typically involves higher interest rates, extremely long loan periods, and inflated value of the