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The US Housing Market and the Subprime Mortgage Crisis (A)
Excerpts
The US Mortgage Market in the Early 2000s
In the 2000s, with the changing market structure, new types of mortgages replaced fixed rate mortgages (FRMs) as the most popular mortgage loan. Many non-traditional mortgages were introduced in this period. Some of these allowed borrowers to postpone payment of principal and, some even allowed the postponement of interest payment (Refer Exhibit III for more about different non-traditional mortgage loans)... |
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The Crisis
By mid-2004, house prices in the US had appreciated steeply.Sensing the formation of a ‘bubble', the Federal Reserve began raising interest rates gradually, so as to prevent a sharp downturn in the housing market which it was feared could lead to a recession just as the bursting of the dotcom bubble in 2000 had contributed to the subsequent recession of 2001-02. Between June 2004 and July 2006, interest rates were increased 17 times, from 1 percent to 5.25 percent (Refer Table I).........
