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Finance 431: Property-Liability Insurance - page 13 / 35

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Sub-Prime Crisis

Housing market begins to boom in 2002 due to low interest rates.

Asset-backed securities on mortgages are created also known as mortgage backed securities (MBSs).  At first with normal mortgages.

As housing boom continues after 2002, new asset-backed securities are created, but these new securities included sub-prime mortgages.

Some of these securities with very few sub-prime mortgages bundled together with other normal mortgages were able to earn AAA ratings.

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