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Subprime Meltdown
frenzy, some of these lenders extended mortgages to those who generally would
not qualify for traditional loans because of the high risk associated with their
poor credit history. For this reason, investment firms seemed to be eager to buy
these loans and repackage them as mortgage backed securities.
Many of the lenders who offered these subprime mortgages had specific
mortgages to essentially help unqualified candidates qualify for mortgages
that they couldnt afford to begin with. One type of mortgage that became
popular was a 2/28.., which was fixed for 2 years and became variable for the
remaining 28 years. These adjustable rate loans made buyers feel as though
their mortgages may be affordable, however much like in the 2/28 type, after
the two year reset the interest rate hurdles to a dramatically higher
unaffordable rate. The spike in monthly payments can be contributed to buyers
going into default and a major rise in foreclosures. This meltdown caused
dozens of banks to go bankrupt and even led to enormous losses from Wall
Street firms and hedge funds that marketed and invested heavily in riskier
mortgage related securities.
Ultimately, the economic recession was a result of many factors,
including the banking, housing and financial market meltdowns. The subprime
mortgage crisis resulted in the downfall of large financial institutions and
government bailouts for banks. The U.S subprime mortgage crisis was
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