Lessons From Credit Crunch The Economist

The subprime mortgage crisis is an ongoing economic problem manifesting itself through liquidity issues in the banking system owing to foreclosures which accelerated in the United States in late 2006 and triggered a global financial crisis during 2007 and 2008. The crisis began with the bursting of the US housing bubble and high default rates on "subprime" and other adjustable rate mortgages (ARM) made to higher-risk borrowers with lower income or lesser credit history than "prime" borrowers. Loan incentives and a long-term trend of rising housing prices encouraged borrowers to assume mortgages, believing they would be able to refinance at more favorable terms later. However, once housing prices started to drop moderately in 2006-2007 in many parts of the U.S., refinancing became more difficult. Defaults and foreclosure activity increased dramatically as ARM interest rates reset higher. During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure activity, up 79% versus 2006. As of December 22, 2007, The Economist estimated subprime defaults would reach a level between U.S. $200-300 billion
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The Economist October 20th 2007
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The Economist is a weekly news and international affairs publication owned by “The Economist Newspaper Ltd” and edited in London, UK. It has been in continuous publication since September 1843. Altough printed in London, in the USA (where it is largely sold) this publication is reputed to be the best in its field.


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Mortgage market needs $1 trillion, FBR estimates
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