Subprime Mortgages: As the Knot Unravels, A Question Lingers: Why?

US Banker, May, 2007 by Lee Conrad

Consumers and companies following their self-interest are supposed to be guiding forces that drive a capitalist economy. The recent meltdown of the subprime-mortgage market, however, raises the question of whether all participants were headed in that direction. And if not, why not? Subprime lending has grown dramatically since the late 1990s. According to the Center for Responsible Lending, 23 percent of total mortgage originations in 2006 were subprime, up from 10 percent in 1998. Add to that today's short-term interest rates of 5.25 percent (up from one percent in 2003) and stalled home values, which eliminates the presumed safety net of allowing consumers to refinance their homes to pay off their loans if necessary, and the economy is faced with a barrel full of homeowners in...

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