Buildup and Meltdown of the Mortgage and Credit Markets

After 2006, it became practically impossible to turn on the TV without seeing another increasingly gloomy report about "the subprime crisis." Even as trouble spread far beyond this particular corner of the housing market, the word subprime was being used as shorthand for the cause of the nation's financial woes. But does the entire concept of subprime lending really deserve the stigma that has been attached to it by the media's coverage?

It is true that subprime borrowers were the first to show signs of stress when housing prices ceased their upward trajectory. When the bubble burst, a wave of defaults and foreclosures began sweeping through the subprime market. These were undeniably painful losses, but even so, how did they cause such outsized reverberations throughout the financial system?

To truly grasp the story behind the mortgage meltdown, it is helpful to step back and take an in-depth look at the growth of subprime lending, examining how the system was used and abused and how the securitization trend discussed in Chapter 2 magnified the losses in this market.

Was this article helpful?

0 0

Post a comment