September 01, 2010

Understanding the Boom and Bust in Nonprime Mortgage Lending

Eric Belsky, Nela Richardson

The boom and bust in nonprime and nontraditional mortgage lending in the United States is without precedent. The factors that fueled the boom and the way it unfolded sowed the seeds for what, in hindsight, appears to be an inevitable bust. The amount of risk in the system ballooned as a result of changes in lending practices. At the same time that credit was opened up to borrowers who had been previously denied loans because of past problems repaying their debts, many other underwriting standards were loosened. In addition, products with heavy payment reset risks proliferated in both the prime and nonprime markets. This layering of risk at or near the peak of an overheated housing market was what proved so deleterious to loan performance...

Category: Reports

Read More About: Housing Markets & Conditions, Homeownership, Affordability