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Impact of Financial Markets on Economic Stability and Growth: The Case of Sub-Prime Mortgage Lending - page 10 / 42

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1/23/2015

Jamshid Damooei, PhD

10

Are all the Borrowers High Risk?............Continued

As home prices accelerated across the country over the past decade, more affluent families turned to high-rate loans to buy expensive homes they could not have qualified for under conventional lending standards. High-rate loans are those that carry interest rates of three percentage points or more over U.S. Treasurys of comparable durations.

Credit-worthy borrowers holding subprime loans may turn out to serve as a sort of shock absorber for the current mortgage crisis.

The data perhaps explain why, so far, nearly 80% of the borrowers with subprime loans have continued to keep their loan payments current, according to some analysts. That could indicate the crisis won't continue to deepen as much as some fear.

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