Subprime mortgage crisis
Lending policies
An important factor was the easing of credit terms for loans to to low-income borrowers by the government-sponsored agencies (Fannie Mae and Freddie Mac) [1], and the growing proportion of loans that went to "subprime borrowers" [2] . Subprime borrowers were people who had been given low credit ratings [3] because they had a history of late payments or defaults. Subprime mortgages were much more profitable than normal mortgages because, compared with a typical 5 percent interest rate, subprime borrowers were usually charged about 7 percent. Often they were sold to existing home owners who needed money to pay off other debts [4]. Some were sold by mortgage brokers who adopted "predatory lending "[5] practices, or otherwise misled their clients, [6]. Most of them were "adjustable-rate mortgages" with initially low repayment rates that were due to be raised after the first two or three years.
- ↑ Stephen Holmes: Fannie Mae Eases Credit To Aid Mortgage Lending, New York Times, September 1999
- ↑ The proportion of mortgages held by subprime borrowers rose from less than 10% in 2000 to 20% in 2006
- ↑ Typically with a FICO credit rating (which range from 300 to 850) of less than 620.
- ↑ According to Mary Moore of the Center for Responsible Lending
- ↑ Predatory Mortgage Lending Center for Responsible Lending January 2005
- ↑ Keith Ernst, Debbie Bocian, and Wei Li: Steered Wrong: Brokers, Borrowers, and Subprime Loans, Center for Responsible Lending, April 8, 2008