The Subprime Mortgage Crisis

Paper Summary:

This paper explains the subprime mortgage crisis in a simplified manner, with the aim of helping people with a weak financial background understand the crisis. The paper clarifies the causes and consequences
of this crisis.

Outline:
Subprime Meltdown
Causes
Consequences

From the Paper:

"Subprime mortgages are home loans given to borrowers with poor credit ratings. Credit ratings--basically an evaluation of an individual's ability to pay, and willingness to pay--are used as a basis for a loan's approval or rejection. In the years after 2001, rising real estate prices have encouraged lenders to take in more risks. Until 2007, creditors lent too much money to too many borrowers who did not make enough money to cover the monthly payments. In some instances, lenders did not even verify the borrowers' incomes (Liedtke, 2007).
"Michael Liedtke adds that because most subprime mortgages carried artificially low interest rates during the first few years of the loan, it took a while for the problems to surface. When home prices stopped rising after 2005, refinancing became a problem for subprime borrowers because of the resulting lower equity."

Sample of Sources Used:

• Aritake, Toshio. "Japanese Government Unveils Banks' Subprime Exposures For the First Time" December 3, 2007. Bankruptcy Law Daily. Vol. 7, No. 231
• Grewal, Baljeet. "Effects of subprime turmoil". August 13, 2007. The Star Online. Retrieved on December 4, 2007.<http://biz.thestar.com.my/news/story.asp?file=/2007/8/13/business/18565914&sec=business>
• Christie, Les. "Subprime Blame Game". CNNMoney.com. Retrieved on April 20, 2007 <http://money.cnn.com/galleries/2007/real_estate/0704/gallery.paly_the_subprime_blame_game/index.html?section=money_realestate>
• Der Hovanesian, Mara, Coy, Peter, Goldstein, Matthew and Henry, David. "Making Sense of the Mortgage Mess". March 19, 2007. BusinessWeek. Retrieved on December 5, 2007. <http://www.msnbc.msn.com/id/17692498/>
• Dodd, Christopher. "Hearing on Mortgage Market Turmoil: Causes and Consequences". March 22, 2007. United States Senate Committee on Banking, Housing, and Urban Affairs. Retrieved on December 5, 2007. <http://banking.senate.gov/index.cfm?Fuseaction=Articles.Detail&Article_id=125&Month=3&Year=2007>

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