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Subprime Mortgage Crisis And Funds
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Sub prime mortgage loans are those that are offered to high credit-risk borrowers with lower income or tainted credit history. These loans are primarily adjustable-rate mortgage loans where the interest rates are low for the initial 2-3 years and are thereafter readjusted to a higher rate.
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As a result of this, the monthly mortgage payment increases to a value that becomes difficult for the borrower to pay. Due to this, several borrowers default with their loan repayment resulting in home foreclosure. Adjustment in the interest rates occurs periodically. These adjustments occur every six months to one year.
Sub prime mortgage financial crisis can be described as a sharp and unprecedented rise in home foreclosures that occurred due to the defaulting in subprime mortgage loans. This started during the fall of 2006 in the United States and ended up eventually becoming a global financial crisis within a year. The most affected by this crisis are the minority communities living in the United States including African-Americans, Latinos and Hispanics. According to a study conducted by the Wall Street, more than 20 percent of sub prime mortgage loans issued between 2005 and 2006 are being projected to end up as defaults. Currently, more than 2 million borrowers with subprime loans are facing the risk of home foreclosures and about $164 billion is lost due to foreclosures in subprime mortgage market.
Subprime mortgage crisis has even affected the flow of funds into and from the market. Lenders provided credit to borrowers but are unable to retrieve the amount due to loan defaults. Unable to withstand this, several subprime lenders are filing bankruptcy and many others have already closed their operations. Other lenders, who are able to withstand the market crisis, are now resorting to more stringent standards and making it difficult for people to obtain loans.
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