Subprime Mortgage Essay

1009 Words 5 Pages
Benjamin Franklin once said, “money has never made man happy, nor will it, there is nothing in its nature to produce happiness. The more of it one has the more one wants” (brainy quotes). 8 years ago the United States economy suffered the most extensive downturn since the Great Depression. Leading up to the financial crisis prices of homes were on the rise and home- ownership rates rose to monumental level of 68.8%. Traditionally when customers apply for a mortgage the customer would put 20% down and then take a mortgage out for the other 80%, but as the prices of home began to rise lenders began to make loans to perspective homeowners who normally would not qualify (Bigio). In 2008 the United States of America suffered a financial crisis in …show more content…
A subprime mortgage is defined as a loan given to customers with poor credit histories who would normally not qualify for a conventional mortgage. “Most subprime loans had adjustable interest rates, with a low initial interest rate (often called ”teaser rates”) that would later rise in a process known as mortgage reset” (Bigio). As the values of homes rose in the real estate market more customers were applying for mortgage and buying homes increasing the overall economic profit from the market. The U.S. ownership rate increased from 64 % in 1994 to an all-time high peak of 69.2 % in 2004. (Business) Now that the housing market was a boom, many borrowers(AKW) wished to invest money into the market but, many of these customers while they might have had a clean credit history they(erase this word) lived in a low income household and could not cover their mortgages, forcing them to take out more loans therefore, creating more debt. Lending money to those with low income or those who have poor credit is not the smartest business chose(right word?) so lenders simply create a higher interest-rate 's to try and compensate for the greater risks

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