The Sub Prime Mortgage Lending Crisis

The sub-prime mortgage crisis has shocked and rocked the world of Wall Street and has been front page news in recent weeks. Sub-prime mortgages totaled $600 billion in 2006, accounting for about one-fifth of new mortgages last year and may account for up to 60 percent of all foreclosures in 2007.
Experts say we may feel the repercussions of these events in the financial world for years to come. The sub-prime lending crisis has led to restrictions on the availability of credit for prime lenders and may lead to a US recession.
Sub-prime lending means companies making loans to risky borrowers who do not qualify for market interest rates due to the customer's poor credit history, unemployment or other causes. Sub-prime lending occurs in many financial markets, including mortgage, automobile and credit cards. With the much higher risk comes a much higher payout.
Sub-prime lending has become extremely controversial in recent years and the current crisis was foreseen by many experts. What turned the sub-prime mortgage fall-out into a crisis has been predatory lenders that attempt to gouge sub-prime loaners for as much profit as possible or may be deliberately misleading or lending to borrowers who could never meet the terms of their loans, thus leading to defaults, seizures and foreclosures.
Sub-prime lending is very risky for both lender and borrower due to high interest rates, that's why they are offered at a rate much higher than A-paper or prime loans due to that increased risk.
Due to the recent crisis, hundreds of thousands of borrowers have been forced to default and several major sub-prime lenders have filed for bankruptcy and the US may feel the crunch of this crisis for years to come.