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The Wall Street Journal does a great job of explaining the situation:
One common assumption about the subprime mortgage crisis is that it revolves around borrowers with sketchy credit who couldn’t have bought a home without paying punitively high interest rates. But it turns out that plenty of people with seemingly good credit are also caught in the subprime trap.
An analysis for The Wall Street Journal of more than $2.5 trillion in subprime loans made since 2000 shows that as the number of subprime loans mushroomed, an increasing proportion of them went to people with credit scores high enough to often qualify for conventional loans with far better terms.
In 2005, the peak year of the subprime boom, the study says that borrowers with such credit scores got more than half — 55% –of all subprime mortgages that were ultimately packaged into securities for sale to investors, as most subprime loans are. The study by First American LoanPerformance, a San Francisco research firm, says the proportion rose even higher by the end of 2006, to 61%. The figure was just 41% in 2000, according to the study. Even a significant number of borrowers with top-notch credit signed up for expensive subprime loans, the firm’s analysis found.
The article details three key details: Sales Pitch, Confused Borrowers, and ‘Duped Into Loans’
See Michelle Malkin’s: Hillary and Bush agree: Government should bail out homeowners
One Response to “The Subprime Mortgage Crisis Explained”
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When you are being charged $300 per appraisal and the appraisal goes to the mortgage broker and not to you, you can get really screwed. It traps you into dealing with only one broker and they frequently only have their best interests in mind. I was told I could only get a subprime loan because I’m self employed, so I took it with the idea that I would refinance when I had more time being self employed. When I went to refi, one lender offered me a loan that was a joke. If I hadn’t read through the good faith estimate and taken that loan, I’d have lost my house 6 months later.
Of course the fact that Freddie Mac encouraged lenders to make loans to ILLEGAL ALIENS didn’t help anything. Exactly why would ANYONE lend money to someone for a residence without a legal means to pay for it? Or for that matter a legal right to live in it?