The US Housing Market and the Subprime Mortgage Crisis (A)



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Introduction Contd..

From 2006, the real estate markets in several regions in the US saw price declines, after witnessing double-digit growth rates between 2000 and 2005. This decline in house prices, together with rising interest rates, seriously affected the subprime mortgage borrowers – a class of borrowers who on account of their poor credit histories were not eligible for prime loans - with several of them failing to make payments on their mortgage loans....

Given that the subprime mortgage market9 had surged from $120 billion in 2001 to $600 billion in 2006 and accounted for a significant share of the mortgage market, the high rate of defaults in subprime loans was seen as an indicator of the worsening situation in the housing market and the US economy as a whole.....

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Background Note

The history of the US mortgage market dates back to the late 18th century. Some of the first organizations in the US housing market were the Terminating Building Societies (TBSs). Under TBSs, a group of people pooled their savings to construct houses. As each house was completed, the members would draw lots to select who would receive the house.....

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