Posterous theme by Cory Watilo

Sub-prime Mortgages

The economic crisis of 2008 was largely created by sub-prime mortgages. A sub-prime mortgage is a loan given out a person who is not the ideal person to be eligible for a conventional loan, so the lender a taking a great risk in giving this loan. This is because the borrower may default on the loan. To combat this risk of defaulting on the loan and the lender losing a lot of money, the lender charges a higher than normal interest rate on the loan.   

 

In 2008 the hammer came down on the lenders, their borrowers started to default on their loans. A huge bubble burst and money a substantial amount of money was lost by both the lenders and the borrowers. Economic crisis ensued after the bubble burst.

 

 

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(This graph shows the growing amount of sub-prime mortgages taken out from 1980-2004. This graph clearly illustrates the bubble forming by theses mortgages.)