An analysis of the 2006/2007 subprime mortgage crisis : the impact on the U.S. and other selected economies

Abstract

Recently prices of stocks were going down all over the globe and even funds situated in Malta were affected. This sort of crisis was induced by the explosion of the subprime mortgage bubble that was being inflated over the past years and that did not resist any longer. Subprime mortgage lending is a general term that refers to the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history. It also refers to paper taken on property that cannot be sold on the primary market, including loans on certain types of investment properties and certain types of self-employed individuals. Subprime mortgage lending is far from risk-free business. The risks involved do not only threaten the borrower, but even the lender due to the combination of high interest commitments, poor credit history, and murky financial situations often associated with subprime mortgage applicants. A subprime mortgage is offered at a rate higher than A-paper loans due to the increased risk. Subprime lending is also referred to as B-paper. This dissertation considers the causes and effects of the subprime mortgage crisis, and its impacts on the stock prices of banks traded in the U.S. and the U.K.