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Below are some videos from YouTube.com which describes the Subprime Mortgage Crisis in the U.S.
It describes the roots of this gigantic problem, which had resulted to the following: • 2 million foreclosures as a result of resetting adjustable interest rates
• $71 billion in housing related losses resulted from those 2 million foreclosures and $32 billion losses as a spillover in neighborhoods with many foreclosures
• $2.3 trillion loss as a result from 10 % decrease of real estate prices
• $1 billion loss from decreased value of property tax assessments
The damage is done.
The subprime mortgage crisis is an ongoing economic problem manifesting itself through liquidity issues in the global banking system owing to foreclosures which accelerated in the United States in late 2006 and triggered a global financial crisis through 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% from 2006.
The lenders depended almost entirely in collateral when they gave out loans to subprime clients, which are considered risky borrowers. The lenders thought that they will be safe if there is adeuqate collaterals. But, when this crisis started, the real estate prices plummeted bringing down home prices to a level which is only a fraction of the original loan principal.
The key lesson here is this: Banks should focus on the capacity of the borrower to pay and not really too much collaterals. A borrower with poor credit score or credit rating should not be given a loan even if he has some collateral to offer.
Below are some videos that document this hue crisis:
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