Subprime crisisA situation starting in 2008 affecting the mortgage industry due to borrowers being approved for loans

they could not afford. As a result, a significant rise in foreclosures led to the collapse of many lending institutions and hedge funds. The financial crisis in the mortgage industry also affected the global credit market resulting in higher interest rates and reducedavailability of credit.

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There are several reasons why this crisis occurred including: An Increase in High-risk Loans Lender behavior changed dramatically in advance of the housing crisis. In 1996, subprime mortgages only amountedto roughly 9% or total originations. Fast-forward 10 years to 2006 and 20% of all mortgages could be classified as subprime. In an effort to bolster mortgage-backed securities (which could then be sold to investors), lenders doled out loans to high risk borrowers Securitization Practices Securitization refers to the practice of selling consolidated debts as bonds to investors. The amount of mortgage-backed securities almost tripled between 1997 and 2007. Many of these debt pools were sold by private banks and were not guaranteed against default. The Financial Crisis Inquiry Commission reported in January of 2011 that major credit rating agencies were complicit in the subprime mortgage crisis since subprime mortgages could not have been marketed or sold without their approval. This crisis could not have happened without the rating agencies. Their ratings helped the market soar and their downgrades through 2007 and 2008 wreaked havoc across markets and firms." Mortgage Fraud There are several investigations in progress as to whether or not banks hoodwinked credit rating agencies to inflate the rating of various mortgage-backed securities. According to the New York Times, the United States attorneys office and more are examining how banks created, rated, sold and traded mortgage securities that turned out to be some of the worst investments ever devised. These are merely a few of the speculated causes of the subprime mortgage crisis. Subprime mortgages can be a multifaceted and complex issue to understand. In cases that involve mortgage-backed securities, it can often be helpful to retain an expert witness with financial credentials. ForensisGroup articles provide information about legal matters related to the expert witness industry. Legal information is not the same as legal advice. While ForensisGroup goes to great lengths to ensure that the information it offers is useful and accurate, we always recommend that you consult a professional before acting on any legal information read on the Internet.

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