Subprime Mortgage Market Meltdown

 

What is a “subprime” loan?
Subprime mortgages are more expensive loans intended for people with impaired or limited credit histories.  In recent years, subprime lenders have offered more dangerous types of loans while become looser about approvals—“bad credit okay!”  MORE

How bad are subprime foreclosures?
By any measure, foreclosures have skyrocketed.  At least one out of five subprime loans will end in foreclosure—representing the highest rate of U.S. foreclosures since the Great Depression.  MORE

What's happening in your community?

   

VIDEO: Martin Eakes on the Subprime Meltdown
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Martin Eakes is the CEO of Self-Help Credit Union in Durham NC and the Center for Responsible Lending.

Who's to blame?
Subprime lenders marketed unaffordable subprime loans aggressively in recent years, mostly because Wall Street buyers were eager to invest in these higher-interest loans.  Meanwhile, rating agencies gave subprime securities AAA (the best) ratings, and federal regulators were reluctant to rein in this rapidly growing market.  MORE (PDF)

Why is this affecting the stock market?
Investors from around the world have direct interests in subprime loans, and the poor performance of subprime mortgages has triggered a loss of confidence that has spread throughout financial markets. MORE

 Subprime Scorecard

The cost of the subprime problem extends far beyond families that lose their homes and neighborhoods with dropping property values. Over 100 mortgage lenders already have gone out of business and thousands of workers have lost their jobs. It's harder for firms in other business lines to get credit from once-burned, twice-shy investors, and the stock market is increasingly volatile. Finally, the weaker housing market means slower U.S. economic growth overall. For more info, click on the links below:

Bloomberg.com's Subprime Scorecard

How Credit-Market Tremors Have Affected Junk Bonds, LBOs and Hedge Funds (Wall Street Journal)

Mortgage Lender Implode-O-Meter

 

Who else is getting hurt?
Most directly, the millions of people losing their homes—including minority families, who get more than their share of subprime loans.  One Street's Story   And millions of other families—paying their mortgages on time—will be hurt by declines in property values spurred by nearby foreclosures and a weaker housing market.  MORE  

What can be done?
First, lenders and investors that benefited from making subprime mortgages need to help people trapped in unaffordable loans. The federal government can also help with solutions that don't require taxpayer funds (e.g. reforming bankruptcy laws, expanding Federal Housing Administration loan programs).  Second, state and federal lawmakers should require that lenders offer mortgages free from abusive terms and excessive risks.  Strengthening consumer protections will improve the economy, restore confidence in subprime mortgages, and promote sustainable homeownership. 

How can I get help?
If you are struggling with a subprime loan, check out our links to legal services, loan counselors and other helpful resources.  MORE