Is there worse to come for the subprime mortgage market?

With billions of dollars' worth of subprime loans set to be reset from their artificially low starter rates of interest in the coming months, the market still has plenty to be scared about.

Six months ago at about the time the housing market in America peaked, we learn that subprime mortgages represented 13% of the total of their mortgage stock quite incredible! Financial institutions knowingly lent, at artificially "low start" rates of interest, 100% mortgages to people with bad credit records; not checking on anything, accepting the word of the applicant about income and all other financial matters. Given the figures quoted above, they did this on a massive scale. This would be understandable if it was the result of rogue bankers but it was not. It was a deliberate thought through business plan.

The rates of interest initially charged for many of these loans were not the correct rates but "teaser" rates - in other words, a lower rate of interest, well below the market, was charged with the unpaid amount accumulating to the debt. At a certain predetermined date, these mortgages are reset from when the full payment has to be made, not just on the original loan but also the accumulated amount of any unpaid interest.

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