Subprime mortgage industry collapse
In March 2007, the United States' sub-prime mortgage industry collapsed due to higher-than-expected home foreclosure rates, with more than 25 sub-prime lenders declaring bankruptcy, announcing significant losses. Rise in mortgage delinquencies and foreclosures in the United States, with major adverse consequences for banks and financial markets around the globe. The crisis, which has its roots in the closing years of the 20th century, became apparent in 2007 and has exposed pervasive weaknesses in financial industry regulation and the global financial system.
Many U.S. mortgages issued in recent years were made to subprime borrowers, defined as those with lesser ability to repay the loan based on various criteria. When U.S. house prices began to decline in 2006-07, mortgage delinquencies soared, and securities backed with subprime mortgages, widely held by financial firms, lost most of their value. The result has been a large decline in the capital of many banks and USA government sponsored enterprises, tightening credit around the world
The crisis began with the bursting of the United States housing bubble[1][2] and high default rates on "subprime" and adjustable rate mortgages (ARM), beginning in approximately 2005'' 2006. Government policies and competitive pressures for several years prior to the crisis encouraged higher risk lending practices.[3][4] Further, an increase in loan incentives such as easy initial terms and a long-term trend of rising housing prices had encouraged borrowers to assume difficult mortgages in the belief they would be able to quickly refinance at more favorable terms. However, once interest rates began to rise and housing ...