Subprime Mortgage Meltdown

Abstract

In recent months, there have been almost daily reports on problems that may result from widespread delinquencies in subprime mortgage loans – loans with higher interest rates and fees that are made to borrowers with impaired or limited credit histories, or to first-time borrowers. After all the sound and fury, two questions remain: “How did this happen?” and “How will this end?” This article examines the rapid growth of the subprime mortgage loan market, the recent sharp increases in subprime mortgage loan delinquencies and foreclosure actions, the potential impact of these delinquencies for the subprime lending industry and the secondary market for such loans, and possible regulatory and governmental responses to the situation.

TOPICS: Credit risk management, information providers/credit ratings