When and How Subprime Went Wrong - Explained

Subprime Lending Went Wrong

Subprime loans have enabled thousands upon thousands of Americans who did not qualify for prime loans the opportunity to buy a home via the funds obtained through a subprime loan.

However the subprime lending market got a little to ambitious for their own good.

These overly ambitious subprime lenders began lending to borrowers who did not qualify. These loans were doomed from the get go but they were masked by fill in the blank financial documents and even worst missing documentation.

The other direction was perhaps worst from a ethical stand point but an understandable strategy from a purely cost benefit analysis.

Subprime loans were given to prime borrowers. Even worst many of these loans were taken blindly by borrowers who did not understand what they were getting themselves into. Many prime borrowers were refinancing out of more favorable home loans into less favorable much more expensive loans with exotic terms that the borrowers did not understand.

Thus the end result is today's and yesterday's head lines. First the bad subprime loans to less then subprime borrowers started to go bad. This put pressure on the housing markets. Then that new pressure on housing prices started to push a lot of typical subprime borrowers with subprime loans down the default trap and this really started to put some weight on the housing market.

At this point the level of foreclosures every month is  starting to skyrocket out of control. Loan agents and real estate agents start to quickly find themselves out of work. They start defaulting on their financial obligations including their loans and their home loans as well.

Then the prime borrowers with subprime loans begin to crumble under the quaking of a faltering economy. Once this wave of borrower starts going so to do retail sales, automotive sales, jewelry sales and the like.

As these sales go so to do the salaries and commissions that the employees and agents of those industries were making. Then there mortgages begin to default. Many of these borrowers are prime borrowers.

The mortgage market is in free fall right behind the home sale figures. Businesses are laying off employees and cutting back.

From here it just gets worst.

Nationwide panic leads to world wide panic.

Then there was a bottom. Then there was Obama. Then there was stimulus.

Then the US started on their way back up.

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