Subprime Mortgages: America’s Latest Boom and Bust
Written on December 17, 2009
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Over the past decade, a new mortgage market offering loans at low interest rates and for little or no money down has given low-income people an opportunity to pursue the American dream of homeownership. The resulting wave in home buying promised to stabilize neighborhoods and families, boost the economy, and reduce crime. In many ways, the optimists were correct, but now, less than fifteen years later, the subprime mortgage market is collapsing, threatening to take … More >>
Subprime Mortgages: America’s Latest Boom and Bust
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Filed in: General.
“Subprime Mortgages” is a short, balanced, academic review of a major current topic. Gramlich points out that subprime mortgages have increased home ownership from about 64% to 69%, particularly benefiting minorities and those with lower incomes. They have also led to improved loan application processing.
The bad side includes bringing potential abuses from new, largely unregulated mortgage sources, a 10X increase in default rates (some believe their default rate will reach 20X that of “regular” mortgages), and enormous losses in financial markets around the world. (Gramlich failed to mention the likely damage to American financial market credibility.)
Gramlich also points out that 45% of low-income home owners and 57% of renters are now spending over half their disposable income on housing - a too great load by most standards.
Rating: 5 / 5