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What are the reasons for the sub-prime mortgage crisis?

In: Loans, Mortgages, Economics, Money Management [Edit categories]

Answer:

The main reason is too much debt. In other words, the typical US consumer is now awash in debt brought about by the profilgate use of credit cards, coupled by the purchase of homes with little or no down payment, and barely enough income to support monthly payments. Overly aggressive lending practices poured millions of dollars into the home mortgage business, and these dollars were offered to these marginal home buyers at extremely low initial interest rates. These low rates were come-ons, since the rates could and did escalate as the low initial offering rate period expired and the revised interest rates, in some cases, rose by 30-50%. These higher mortgage interest rates dramatically increased monthly payments, and over extended home purchasers simply did not have the income required to be able to make these increased payments.

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First answer by ID1209838217. Last edit by ID1209838217. Question popularity: 12 [recommend question].

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