Paper Topic:

Subprime Mortgage Crisis

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Subprime Crisis : Financial Turmoil That Reckless Borrowing Snowballed

Owning a home is the ultimate dream of a typical American family However , as a simple fact of economics , seeking that dream can be difficult because homes are among the most expensive asset that people can buy . This is why most people have found a veritable way in securing this dream : obtaining a mortgage . Recently , unscrupulous mortgage practices are on the center stage because lower income American families have been trapped into paying up

homes they couldn 't afford . When lenders offer subprime mortgage , which are a type adjustable-rate loans ordinary Americans are tempted to avail homes in the past years because these loans have attractively lower initial teaser interest rates

Unfortunately , when the housing market crashed early in 2007 , the low teaser loans jacked up their interests to skyrocketing rates and many borrowers could no longer afford to pay up their new , higher mortgage payments . Nightmares began to materialize because it is estimated that 2 .2 million families are set to lose their homes to foreclosure that resulted unscrupulous mortgage lending (Dodd , 22 March 2007 . The Carsey Institute (2006 ) revealed that foreclosure levels at present have been the worst ' that happened in at least 25 years . They said that millions of American families will likely be affected by declines in property values spurred by nearby foreclosures

Everyone now asks what might have gone wrong , since obtaining mortgage has been a time-tested financial instrument ? The turmoil going on in American financial markets have fingers pointing at the unprecedented proliferation of a controversial type of mortgage called subprime mortgage . With people having low credit ratings , they cannot easily obtain regular loans this is why they opt to take subprime mortgage which is a home loan given to people with relatively low incomes and unwarranted credit records . To look attractive enough , lenders dress up subprime mortgages with lesser down payment requirements and low introductory interest rates . These are two features that make these loans tempting enough for those with meager incomes or bad credit because it minimizes the annoying barriers to homeownership . Little that they know , almost all subprime mortgages are adjustable-rate loans which has initial low interest rates that may shoot up after the introductory period . This is when interest rates were raised in 2007 the payments for these subprime become ridiculously higher than what they might seem at first glance . Fact is that in 6 states , the failure rate has gone up to 24 percent (See Figure 1

Figure 1 . Subprime Foreclosure in the United States in 2007 (Source www .resposiblelending .org

On the other hand , the recent subprime crisis has also been thought to be brought about by the housing boom that occurred in the past few years . In fact , the U .S . Census Bureau reported homeownership rate in 2004 was at an all-time high at 69 - the highest rate recorded since the 1960s (See Figure 1 . As part of this boom , mortgage lenders...

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