Last year was the year when the term "subprime" became a part of everyday speech and was often followed by any number of other terms in the media. Americans have all become numbed by the hypnotic mantra of subprime statistics; they are all tired of hearing about it. Even if they do not have a subprime mortgage loan or live in a neighborhood adversely impacted by foreclosures or have a retirement account that invested in collateralized debt obligations secured by subprime mortgages, they know the home mortgage industry will be changed for some time to come. While mortgage securitization has been a vital component of the home mortgage industry over the last 30 years, the tremendous growth of the subprime market and accelerating housing price appreciation have driven demand for mortgage capital to unprecedented levels. While default rates are higher for fixed rate subprime mortgages than for prime mortgages, it is the subprime option ARMs that have dramatically higher default rates.
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"SUBPRIME: BOON OR BAIN?"Please download to view full document