Subprime_Group_Presentation_Written_Report

Subprime_Group_Presentation_Written_Report - The Sub-Prime...

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The Sub-Prime Crisis Explained By Greg Keyes & Josh Smith The article that we chose to discuss involves the far-reaching crisis that the U.S. Economy has experienced within the housing industry. The U.S. housing market experienced never before seen growth from 2001 until 2005. Unfortunately circumstances change, the “the bubble burst”, bringing a deflation only rivaled by the previous expansion. Sub-prime itself is defined as, “mortgages where the borrower typically has a history of paying late or not paying”. The primary vehicle, through which these loans made it to the market, was the way mortgages were bundled and sold. Many home mortgages were grouped together, creating larger chunks, spreading risk across a larger range of homogenous units. These were then given ratings by government and non-government agencies. Through this transformation risky and illiquid mortgage loans were turned into bond-like securities. This not only allowed people to invest in a “safer” asset based on a high rating, but an investment with reliable returns. Unfortunately, in hindsight, it got easier through unaccountability to approve bad loans, even some where the borrower had little, to no chance, of paying it back. The mortgage underwriters and
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