Subprime Meltdown

Subprime Meltdown
A financial crisis that arose in the mortgage market after a sharp increase in mortgage foreclosures, mainly subprime, collapsed numerous mortgage lenders and hedge funds.

The meltdown spilled over into the global credit market as risk premiums increased rapidly and capital liquidity was reduced. The sharp increase in foreclosures and the problems in the subprime mortgage market were largely blamed on loose lending practices, low interest rates, a housing bubble and excessive risk taking by lenders and investors.

It is also known as the "subprime collapse" or "subprime crisis".

Following the tech bubble and the events of September 11, the Federal Reserve stimulated a struggling economy by cutting interest rates to historically low levels. As a result, a housing bull market was created. People with poor credit got in on the action when mortgage lenders created non-traditional mortgages: interest-only loans, payment-option ARMs and mortgages with extended amortization periods. Eventually, interest rates climbed back up and many subprime borrowers defaulted when their mortgages were reset to much higher monthly payments. This left mortgage lenders with property that was worth less than the loan value due to a weakening housing market. Defaults increased; the problem snowballed, and several lenders went bankrupt.

Investors and hedge funds also suffered because lenders sold mortgages they originated into the secondary market. Here the mortgages were bundled together and sold to investors as collateralized debt obligations (CDOs) and other mortgage-backed securities (MBSs). When the higher risk underlying mortgages started to default, investors were left with properties that were quickly losing value. In the wake of the meltdown, central banks released liquidity into the market place, which allowed struggling lenders and hedge funds to continue operations and make the necessary payments on their obligations.


Investment dictionary. . 2012.

Игры ⚽ Нужно решить контрольную?

Look at other dictionaries:

  • Meltdown — is a term generally referring to a nuclear meltdown or the melting of a nuclear reactor core as a result of a serious nuclear accident. The term has also been borrowed to describe the following: The Subprime mortgage crisis A tantrum Meltdown… …   Wikipedia

  • meltdown — melt‧down [ˈmeltdaʊn] noun [singular] ECONOMICS a situation in which prices fall by a very large amount or an industry or economy becomes much weaker: • A near meltdown in overseas stock markets sent U.S. prices plunging for the third consecutive …   Financial and business terms

  • Subprime mortgage crisis — Part of a series on: Late 2000s financial crisis Major dimensions …   Wikipedia

  • Subprime crisis background information — This article provides background information helpful to understanding the subprime mortgage crisis. It discusses subprime lending, foreclosures, risk types, and mechanisms through which various entities involved are affected by the crisis.A plain …   Wikipedia

  • Names used to describe the Subprime Mortgage Crisis — Below are alternative names used to describe the current subprime mortgage crisis in the media: Credit Crisis [http://www.ft.com/cms/s/0/5279daec 8db9 11dd 83d5 0000779fd18c.html] Credit Crunch [http://news.cnet.com/8301 1001 3 10053693 92.html]… …   Wikipedia

  • Cronología de la crisis de las hipotecas subprime — Anexo:Cronología de la crisis de las hipotecas subprime Saltar a navegación, búsqueda …   Wikipedia Español

  • Credit rating agencies and the subprime crisis — Main article: Subprime mortgage crisis Credit rating agencies played a very important role at various stages in the subprime crisis. They have been highly criticized for understating the risk involved with new, complex securities that fueled the… …   Wikipedia

  • Government intervention during the subprime mortgage crisis — Due to the subprime mortgage crisis, a variety of government bailouts were implemented to stabilize the financial system during late 2007 and early 2008. Governments intervened in the United States and several Western European countries, such as… …   Wikipedia

  • Arnall, Roland Edmond — ▪ 2009       American businessman born March 29, 1939, Paris, France died March 17, 2008, Los Angeles, Calif. founded (1979) Ameriquest Mortgage, the largest subprime mortgage company in the U.S. during the housing boom of the 1990s, but the firm …   Universalium

  • Hope For Homeowners — A federal aid program aimed at helping homeowners who reside in neighborhoods that were hit the hardest in the subprime meltdown of 2008. Hope for Homeowners will offer nearly $4 billion in aid to homeowners who are behind on their mortgages to… …   Investment dictionary

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”