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Why the Subprime Meltdown?

The subprime mortgage meltdown refers to the rash of subprime mortgage foreclosures that began in the United States in late 2006 and has continued into 2007. The sharp rise in foreclosures has caused several major subprime mortgage lenders, such as New Century Financial Corporation, to shut down or file for bankruptcy, leading to the collapse of stock prices for many in the subprime mortgage industry. The crisis is ongoing.

Observers of the meltdown have cast blame widely. Some, like Chairman of the U.S. Senate Banking Committee Chris Dodd, have highlighted the predatory practices of subprime lenders and the lack of effective government oversight. Others have charged mortgage brokers with steering borrowers to unaffordable loans, appraisers with inflating housing values, and Wall Street investors with backing subprime mortgage securities without verifying the strength of the portfolios. Borrowers have also been criticized for entering into loan agreements they could not meet.


Subprime Mortgage Lending:
Subprime mortgage loans are riskier loans in that they are made to borrowers unable to qualify under traditional, more stringent criteria due to a limited or blemished credit history. Subprime borrowers are generally defined as individuals with limited income or having FICO credit scores below 620 on a scale that ranges from 300 to 850. Subprime mortgage loans have a much higher rate of default than prime mortgage loans and are priced based on the risk assumed by the lender.

Full Story from Wikipedia:
http://en.wikipedia.org/wiki/Subprime_meltdown