What is the Subprime Mortgage Crisis

There is much in the news these days about the subprime mortgage crisis and how it has led to foreclosures in the real estate world. Unfortunately, many news reports chronicle the expansion of the subprime mortgage crisis, but they often do not define. This is due to the erroneous assumption that the audience generally understands what this crisis refers to. Granted, there are those familiar with this crisis, but for those who lack a coherent understanding of what it refers to a more detailed explanation is provided.

In short, there was a five year period that ran from 2000 – 2005 where mortgages were made available to borrowers who were having a difficult time being approved for loans by “mainstream” lending institutions. So, these borrowers sought alternate means of acquiring a mortgage and found their “supplier” in the form of subprime lending institutions. Essentially, the terms and conditions offered by a subprime lender were stricter than a standard bank and, additionally, the interest rates were much higher. This was not done in order to be predatory; it was done because the borrower was essentially a high risk candidate.

Unfortunately, as many of the traditional lending institutions predicted, these high risk borrowers ended up in default of their loans. This has led to foreclosures and in an attempt to avoid foreclosure many of the borrowers opted to dump their property and recoup their losses. With so many houses put up for sale market values plummeted and, as a result, the subprime mortgage crisis of massive foreclosures and devalued real estate has occurred. This has created a crisis and it will be quite a while before this massive real estate crisis eventually stabilizes.