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Finance 431: Property-Liability Insurance - page 16 / 35

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Sub-Prime Crisis

Since the mortgages were being turned in to ABSs, this allowed the mortgage lenders to transfer much of the default risk to the investment market.

With mortgage lenders not carrying a lot of the default risk, they began to alter their loans to get even more people to purchase houses.

These new loans included even lower interest rates for the first or second year of mortgages, or they included interest only mortgage loans, in which borrowers would not have to pay the larger principals until a few years passed.

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