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Definition of 'Subprime Meltdown'
A financial crisis that arose in the mortgage market after a sharp increase in mortgage foreclosures, mainly subprime, collapsed numerous mortgage lenders and hedge funds.
The meltdown spilled over into the global credit market as risk premiums increased rapidly and capital liquidity was reduced. The sharp increase in foreclosures and the problems in the subprime mortgage market were largely blamed on loose lending practices, low interest rates, a housing bubble and excessive risk taking by lenders and investors.
It is also known as the "subprime collapse" or "subprime crisis".
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Investopedia explains 'Subprime Meltdown'
Following the tech bubble and the events of September 11, the Federal Reserve stimulated a struggling economy by cutting interest rates to historically low levels. As a result, a housing bull market was created. People with poor credit got in on the action when mortgage lenders created non-traditional mortgages: interest-only loans, payment-option ARMs and mortgages with extended amortization periods. Eventually, interest rates climbed back up and many subprime borrowers defaulted when their mortgages were reset to much higher monthly payments. This left mortgage lenders with property that was worth less than the loan value due to a weakening housing market. Defaults increased; the problem snowballed, and several lenders went bankrupt.
Investors and hedge funds also suffered because lenders sold mortgages they originated into the secondary market. Here the mortgages were bundled together and sold to investors as collateralized debt obligations (CDOs) and other mortgage-backed securities (MBSs). When the higher risk underlying mortgages started to default, investors were left with properties that were quickly losing value. In the wake of the meltdown, central banks released liquidity into the market place, which allowed struggling lenders and hedge funds to continue operations and make the necessary payments on their obligations.
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Search results for 'Subprime Meltdown'
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http://www.investopedia.com/articles/07/subprime-overview.asp
The Fuel That Fed The Subprime Meltdown. ... Only when the last part happens will
we be able to assess the total impact of the subprime meltdown. ...
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http://www.investopedia.com/articles/07/subprime-blame.asp
... (For an in-depth discussion of these events, see The Fuel That Fed The Subprime
Meltdown.). Advertisement - Article continues below. ...
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http://www.investopedia.com/articles/pf/07/subprime-impact.asp
... Therefore, as this situation continues, it is important to ask how the subprime
meltdown might affect you. Read on as we examine this question. ...
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http://www.investopedia.com/ask/answers/07/subprime-mortgage.asp
... (To learn more, read The Fuel That Fed The Subprime Meltdown.) Many lenders were
more liberal in granting these loans from 2004 to 2006 as a result of lower ...
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http://www.investopedia.com/articles/financial-theory/08/structured-products.asp
... (To read all about the credit crisis and mortgage meltdown, see The Fuel That Fed
The Subprime Meltdown.). Advertisement - Article continues below. ...
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http://www.investopedia.com/articles/economics/09/lehman-brothers-collapse.asp
... (For more information on the subprime meltdown, read Who Is To Blame For The Subprime
Crisis?) The History of Lehman Brothers Lehman Brothers had humble origins ...
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http://www.investopedia.com/ask/answers/07/liquidity-squeeze.asp
... For example, a liquidity squeeze occurred as a result of the subprime meltdown
that took place at the beginning of 2007. Essentially ...
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http://www.investopedia.com/articles/07/new-century.asp
... (For a one-stop shop on subprime mortgages and the subprime meltdown, check out
the Subprime Mortgages Feature.) Rise of a Mortgage Juggernaut New Century ...
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http://www.investopedia.com/ask/answers/07/risk-repricing.asp
... A market correction also occurred in response to the subprime meltdown in 2007,
when the market realized that its mortgage-backed securities (MBS), previously ...
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http://www.investopedia.com/articles/financial-theory/08/credit-crisis-mortgages-iphone.asp
... (For more information on subprime lending read Subprime Lending: Helping Hand Or
Underhanded?, The Fuel That Fed The Subprime Meltdown and How Will The ...
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