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Finance 431: Property-Liability Insurance - page 17 / 35

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Sub-Prime Crisis

Many home buyers who could not normally afford houses borrowed from these new mortgage loans in order to purchase a home.

The rationality of purchasing houses with the newer mortgage loan plans was that the housing market would continue to boom.  In this scenario the purchased homes would increase in value substantially enough to be able to refinance the home at a profit, and thus be able to afford the higher future payments of the mortgage.

These new mortgages were mainly sub-prime mortgages and they were being made into MBSs and CDOs as well.

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