The Subprime Mortgage Crisis

•  The Subprime Mortgage Crisis was one of the main contributors in 2007-2008 global financial crisis. Also known as 'The Great Recession', it was the worst economic downturn since The Great Depression of the 1930s. For many Americans, it took years to recover from the financial crisis.
• These crisis occurred from 2007 to 2010, after the collapse of the US housing market.
• When the housing bubble burst, many borrowers were unable to pay back their loans. The dramatic increase in the foreclosures caused many financial institutions to collapse. Many required a bailout from the government. Foreclosure is the legal process by which a lender seizes and sells a home or property after a borrower is unable to meet their repayment obligation 
• Besides the US housing market plummeting, the stock market also fell, with the Dow Jones Industrial Average falling by more than half. The crisis spread around the world and was the main trigger of the global financial crisis.
• Subprime mortgages are loans given to borrowers who have bad credit. They are of high credit risk because they do not have a strong credit history. They are also most likely to default than other people.
• During the housing boom of the 2000s, many lenders give subprime mortgages to borrowers who were not qualified. In 2006, a year before the crisis started, financial institutions lent out $600 billion in subprime mortgages.
•  What caused the Subprime Mortgage Crisis?  Banks, hedge funds, investment companies, insurance companies and other financial institutions created the mortgage backed securities (MBS) and collateralised debt obligations (CDOs). They continue to repackage and sell them to investors who believe they were safe investments. The different financial institutions aggravated the situation by taking more risk than necessary.
• Improper mortgage lending practices played a large role in the crisis. Lenders relaxed their lending standards and gave loans to people who should not have gotten a loan in the first place. Some mortgage lenders even committed mortgage fraud by inflating borrowers' income so they would qualify for a mortgage.
• Credit agencies had conflicts of interest and did not give the proper ratings many believed the subprime mortgages deserved. They gave AAA ratings to risky MBS and CDOs.
• Investors wanted investments that were low risk but earned high returns like an MBS. They fueled demand for subprime mortgages.
• People borrowed to buy houses even if they couldn't really afford them. While there were some buyers subject to predatory lending practices, many took on too much risk and bought houses they should not have. After the Fed raised interest rates, home buyers were unable to afford their mortgage payments.
• Each of the different parties were responsible and reckless in their actions. This led to the subprime mortgage crisis. The cause of the crisis was years in making and did not happen overnight.
• Presently, there is a slump in world's biggest asset class, which has been spreading from the housing market to commercial real estate, threatening to unleash waves of credit turmoil across the economy.
• The fall in transactions and development in commercial and residential real estate will inevitably impact spending in the real economy. In turn, that could pose a risk to jobs and growth.