The Subprime Mortgage Crisis Is A Terrible Incident With A Weak Or Limited Credit History
“The practice of lending money to people with a weak or limited credit history is called subprime lending.”(Charles W. Bryant and Jane McGrath) A higher interest rate is charged on these mortgages and is intended to compensate the lender for accepting the greater risk in lending to such borrowers.
The economy had been in jeopardy of a recession since the dotcom bubble burst in early 2000. The mortgage meltdown was a result of too much borrowing and faulty financial modeling. This was generally based on the assumption that home prices can only go up. Human greed and fraud also played an important part in this crisis. Central banks tried to fuel the economy by creating capital liquidity that reduced interest rates. Investors pursued higher returns by making riskier investments. Lenders also took part and accepted subprime mortgage loans to borrowers with poor credit. Consumer demand forced the housing bubble to an all-time high in 2005, which almost immediately collapsed afterwards in 2006.
“A Global Financial Stability Report was released…