Take a look at this Portfolio.com NCAA tournament-style bracket where you pick who killed the economy. I might have added some brackets for certain mortgage lenders, the debt-addicted American consumer, and those prominent academic economists who gave credence to the Fed's low interest rate policy back in 2003. Still, it is a fun distraction to check out.
The “subprime mortgage” mania began in 2004 when lenders started giving out mortgages to almost anyone — with little or no proof of income — because of profits that could be made off fees, high interest rates and reselling the mortgages. To sell subprime loans, lenders gave low rates for the first two years.
ReplyDeleteAfter this the mortgage rate would shoot up, sometimes doubling or even tripling monthly payments.
Caught between stagnant wages and rapidly increasing house values, Americans turned their homes into cash machines this decade and withdrew trillions of dollars in equity. By last year, many subprime loans were resetting at higher rates and homeowners started to default. This cooled off the housing market fast. Jobs were lost in real estate, construction and home lending, and retail spending slowed, slowing the economy.