Question

discuss how the mortgage securitization causes the sub-prime rate mortgage crisis.

Answer 1

Subprime lending is the lending money to someone who is likely to have trouble repaying it.Thus the definition of a subprime mortgage is a home loan sold to someone who is unlikely to be able to keep up with the monthly payments.

Hedge funds,banks,and insurance companies caused the subprime mortgage crisis.Hedge funds and banks created mortgage backed securities.The insurance companies covered with them with credit default swaps.Demand for mortgage led to an asset bubble in housing.

when the federal reserves raised the federal funds rate,it sent adjustable mortgage interest rates skyrocketing.As a result,home prices plummeted and borrowers defaulted.Derivative spread the risk into every corner of the globe.