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Sub-Prime Mortgages
Subprime mortgages are home loans that are made to borrowers who have weaker credit histories or who may be considered to be higher credit risks. These borrowers may have lower credit scores, a history of default or bankruptcy, or a limited credit history. Because of the higher risk of default, subprime mortgages often have higher interest rates and may require the borrower to pay additional fees or insurance.
Subprime mortgages played a significant role in the global financial crisis that began in 2007, as many of these loans were issued to borrowers who were ultimately unable to repay them. The crisis was triggered in part by the widespread practice of issuing risky mortgages to borrowers who were unable to afford them, and by the complex financial instruments (such as mortgage-backed securities) that were created to package and sell these loans to investors.
When the housing market collapsed in many countries not least in the United States and many borrowers defaulted on their mortgages, the value of these securities plummeted, leading to a wave of defaults and foreclosures and a credit crunch that spread throughout the global financial system.
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What is Sub-Prime Lending?
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