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The term subprime refers to the credit quality of particular borrowers, who have weakened credit histories and a greater risk of loan default than prime borrowers. [5] As people become economically active, records are created relating to their borrowing, earning, and lending histories.
Compared to subprime mortgages, prime mortgages are available to highly qualified borrowers who pose little risk to lenders. When lenders advertise rates “as low as” a certain percentage ...
Because subprime loans have such high repayment risk, the origination of large volumes of subprime loans by thrift institutions or commercial banks was not possible without securitization. From a systemic perspective, the dominance of securitization has made the risks of the mortgage market similar to the risks of other securities markets ...
The securitized share of subprime mortgages (i.e., those passed to third-party investors via MBS) increased from 54% in 2001, to 75% in 2006. [96] In the mid-2000s as the housing market was peaking, GSE securitization market share declined dramatically, while higher-risk subprime and Alt-A mortgage private label securitization grew sharply. [26]
Refinancing your mortgage could make sense for several reasons: lowering your interest rate, taking cash out or switching to a fixed-rate loan. ... Make sure the benefits outweigh the costs ...
When Fannie or Freddie bought subprime loans they were taking a chance because, as noted by Paul Krugman, "a subprime loan is precisely a loan that doesn't meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income."
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