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Impact of Financial Markets on Economic Stability and Growth: The Case of Sub-Prime Mortgage Lending - page 3 / 42

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1/23/2015

Jamshid Damooei, PhD

3

What Does It Mean?

The subprime mortgage market caters to borrowers with imperfect credit or other weaknesses, such as insufficient cash for a down payment.

Some houses were bought with 100 percent loans by borrowers hoping to turn a quick profit from appreciation.

Home buyers with 100% loans had negative equity the day they closed, in the sense that if they were forced to resell immediately, the transactions costs, which can be 5 percent or more, would have to be paid out of their pockets.

Many would assume that by appreciation of their homes, they may be able to have positive equity and using the new circumstances, they may be able to refinance their homes and get a better and more stable mortgage rate.

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