the sub prime market

the sub prime market

Politicians helped fuel the housing boom. President George Bush signed the American Dream Down payment from 2003 to subsidize first time home purchases with lower incomes. Lenders were encouraged not to press for full documentation borrowers. Pressure was also put on Fannie Mae and Mac Fraddie support the sub prime market.

Under the market worked fine while interest rates remained low, people retained their jobs and property prices continue to rise. Subprime lenders pocketed fat commissions, and then sold the loans to banks on Wall Street who bundled into securities and repackage them as CDOs. Investors from around the world bought these instruments for the partial return of a few basic points of his capital. It looked as if the award was securitization of risk to those best able to bear it. But actually, the risk was passed on to people who least understood it. The people who deal directly with borrowers and knew that most bore the least amount of risk.