Home ownership has always been a cornerstone of the Great American dream. As Americans reckon it as a risk-free growth investment, many of them prefer owning a house to renting. Against this backdrop, Subprime mortgages emerged as a boon for many, especially for those who couldn't afford to buy a home. It may not be an exaggeration to say that many low income and minority families would not have realized their dream of owning a house without the tremendous growth of this new kind of mortgage business called subprime lending. It long seemed like a winning proposition for all parties.
Nevertheless, over the past few months, as borrowing rates have turned upwards and house prices have fallen sharply in many parts of US, the looming subprime crisis has then surfaced. Though all sectors of the mortgage market have been impaired, but none more than subprime loans which have extended credit to borrowers with shaky credit histories.
The initial alarm bells signaled the meltdown in the late last year when two subprime lenders, Ownit Mortgage Solutions and Mortgage Lenders Network, filed for bankruptcy. However, the seriousness of it was felt only in March 2007 when the nation's second largest mortgage lender, New Century Financial, appeared to run into troubles. Later in April 2007, it filed for bankruptcy under chapter 11. Thus, the avenue which has long contributed to the housing boom in the US has suddenly turned out to be a bane with the increasing delinquencies and foreclosures. Consequently, there are growing concerns that the woes of subprime lending may spread to regular mortgages and even into the broader economy by impinging on consumer spending. |
