Subprime Lending Grows Rapidly and New Products Gain Acceptance

The rapid growth of subprime lending is a relatively recent phenomenon, even though such mortgages have been around for some time. Figures 3.4 and 3.5, respectively, show that subprime home mortgage originations increased dramatically, from $160 billion in 2001 to $625 billion in 2005. Over the same period, subprime home mortgages outstanding rose from $479 billion to $1.2 trillion. (Both originations and the amount outstanding declined sharply when the housing bubble burst: only $16 billion in subprime mortgages were originated during the first three quarters of 2008.)

As Table 3.1 and Figure 3.6 show, subprime mortgages accounted for less than 5 percent of total originations in 1994. In 2000, their share increased to 13 percent and eventually topped 20 percent in both 2005 and 2006. (Their share then dropped to 7.9 percent in 2007 and shrank to less than 1 percent in the third quarter of2008.)

Figure 3.4 Subprime Home Mortgage Originations Increase Rapidly before Big Decline (2001-Q3 2008) US$ billions

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