Real estate prices rose steadily in the United States for decades, with slowdowns caused only by interest rate changes along the way. Prices increased over time as demand for home ownership through government-sponsored programs increased, along with general sentiment that owning real estate represents the American dream. Mortgages became available to a wider range of consumers with programs offered by Fannie Mae, Freddie Mac and others, which may have put money in the hands of some irresponsible homeowners who would later default on payments. Interest rates remained in an affordable range throughout the mid-1990s and early 2000s, making home ownership even more affordable. As with other investments, real estate couldn't possibly appreciate year over year at such a pace forever, and soon the bubble burst.

The collapse certainly didn't happen overnight, but loud rumblings started to occur as subprime mortgages — those made to consumers with less-than-perfect credit — became 20% of the market in 2006, according to the Washington Post. Some banks made subprime mortgages their entire business, and in early 2008 they began to see late payments and defaults in such high numbers that many banks collapsed. Heavy subprime portfolios quickly brought down insurance companies such as AIG that had insured these mortgages. Pools of mortgages used for investments were defaulting, and institutions such as Lehman Brothers and Bear Sterns that underwrote, owned and sold many such investments saw drops in value so great they not only had to shut their doors but also brought down others. Meanwhile, the increased foreclosures began to bring down values of nearby homes, and the chain reaction spread across the country from 2008 to 2010.

  1. Are subprime mortgages still available for homeowners?

    Buying homes became increasingly difficult after the housing bubble burst. Since then, subprime mortgages have been making ... Read Answer >>
  2. What role did securitization play in the U.S. subprime mortgage crisis?

    Learn how the securitization of sub-prime mortgages into asset-backed securities fueled the real estate market crash in 2 ... Read Answer >>
  3. How much risk is associated with subprime mortgages?

    Discover the risks associated with subprime mortgages. Find out whether taking out a subprime mortgage on your home is really ... Read Answer >>
  4. What is a subprime mortgage?

    A subprime mortgage is a type of loan granted to individuals with poor credit histories (often below 600), who, as a result ... Read Answer >>
  5. What are the different types of subprime mortgages?

    Clarify your understanding of subprime mortgages. Learn about the different types, how they work and when they might be beneficial. Read Answer >>
  6. How have low interest rates affected the real estate sector?

    Learn how low interest rates stimulate the real estate sector by making it more affordable to borrow money to invest in real ... Read Answer >>
Related Articles
  1. Insights

    The Fall Of The Market In The Fall Of 2008

    How did America's strong economy tumble so quickly? Find out here.
  2. Insights

    The Fuel That Fed The Subprime Meltdown

    Take a look at the factors that caused this market to flare up and burn out.
  3. Investing

    Who Is To Blame For The Subprime Crisis?

    From lenders to buyers to hedge funds, it appears everyone has blood on their hands.
  4. Personal Finance

    What is a Subprime Mortgage?

    Subprime mortgages are offered to borrowers with low credit ratings, usually 600 or below.
  5. Small Business

    The Rise And Demise Of New Century Financial

    A case study in how poor planning toppled a subprime mortgage giant.
  6. Investing

    How Will The Subprime Mess Impact You?

    The subprime collapse could mean doom and gloom for housing, equities and the overall economy.
  7. Investing

    Subprime Lending: Helping Hand Or Underhanded?

    These loans can spell disaster for borrowers, but that doesn't mean they should be condemned.
  8. Investing

    Subprime Is Often Subpar

    Proceed with caution when considering these short-term, high-interest mortgages.
  9. Insights

    How Fannie Mae And Freddie Mac Were Saved

    These mortgage giants had to be put under government conservatorship, driving home the gravity of the subprime crisis.
  10. Personal Finance

    Rate Freeze To Cool Mortgage Meltdown

    The U.S. government is offering help to subprime borrowers. Is this a cure or a curse?
  1. Subprime Meltdown

    The sharp increase in high-risk mortgages that went into default ...
  2. ABX index

    A financial benchmark that measures the overall value of mortgages ...
  3. Subprime Mortgage

    A type of mortgage that is normally made out to borrowers with ...
  4. Subprime Borrower

    A person who is considered a higher-than-normal credit risk. ...
  5. Mortgage Bond

    A bond secured by a mortgage on one or more assets. These bonds ...
  6. Mortgage

    A debt instrument, secured by the collateral of specified real ...
Hot Definitions
  1. Nest Egg

    A substantial sum of money that has been saved or invested for a specific purpose. A nest egg is generally earmarked for ...
  2. Denial Of Service Attack (DoS)

    An intentional cyberattack carried out on networks, websites and online resources in order to restrict access to its legitimate ...
  3. Perkins Loan

    A loan program that provides low-interest student loans to undergraduate and graduate students who demonstrate exceptional ...
  4. Wealth Management

    A high-level professional service that combines financial/investment advice, accounting/tax services, retirement planning ...
  5. Assets Under Management - AUM

    The market value of assets that an investment company manages on behalf of investors. Assets under management (AUM) is looked ...
  6. Subprime Auto Loan

    A type of auto loan approved for people with substandard credit scores or limited credit histories. There is no official ...
Trading Center