I. Introduction
A sharp rise in home foreclosures and deflation of housing prices has lead to a major crisis. Impacts of this crisis have affected economies of scale globally and domestically. The results have changed many aspects of the way economies function. There are many causes and risks of the subprime crisis and this report will address many of the attributing factors. Areas of economies influenced include lenders, borrowers, financial institutions, brokers, underwriters, regulators, ratings agencies, and central banks. The impacts have heavily influenced actions in the stock markets, institutions, and by homeowners. There are many strategic plans in place to curb these outcomes and see a timely turnaround in economic activities.
II. Background Information
Popularity of subprime mortgages more than doubled in the last decade. Reasons for this include the availability of funds to borrowers with non-adequate credit ratings, low incomes, no incomes, or simply to those with non-prime credit rankings. When attaining a mortgage there are many types and ratings. The ideal mortgage would be one taken at the prime rate or the markets best possible interest rate. These are typically given to borrowers with FICO score above 620 on a scale of 300 to 850. There are multiple types of mortgages, however, there are three types of mortgages that will be discussed and compared in this report. There are prime, Alt-A, and subprime mortgages. Alt-A mortgages are those that typically fall between prime and subprime ratings. The major differences between Alt-A and subprime are; Alt-A borrowers typically have clean credit histories, but typically have h ...