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SubprimeMortgageCrisis - RUNNING HEAD SUBPRIME 1 Subprime...

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RUNNING HEAD: SUBPRIME 1 Subprime Mortgage Crisis: Effects on the Economy Name University Name
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SUBPRIME 2 Subprime Mortgage Crisis: Effects on the Economy The subprime mortgage crisis came to the public’s attention when home foreclosures spiraled out of control in 2007, triggering a national financial crisis that went global within a year. The housing market has plummeted, consumer spending is down, the stock market has been shaken, and foreclosure numbers continue to rise. Collapse of the Subprime Mortgage Industry A subprime mortgage is a home loan that is normally made to borrowers with low credit scores. As a result of the borrower's low credit rating, a conventional mortgage is not offered because the lender views the borrower as having a larger-than-average risk of defaulting on the loan. Lending institutions often charge interest on subprime mortgages at a rate that is higher than a conventional mortgage in order to compensate for carrying more risk. By early January 2007, the United States’ subprime mortgage industry started to show signs of collapsing from higher-than-expected home foreclosure rates. As homeowners fell behind in their mortgage payments in ever-growing numbers, foreclosures continued to rise and interest rates rose to their highest level in years. These conditions left subprime lenders unable to finance new loans.
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