What is Subprime
High-interest-rate loan for
people with poor credit.
What are the risks?
By definition, these borrowers
are higher risk because they have
yet to establish “good” credit.
There is a high risk for both
lender and borrower.
What is a housing
inflated prices that
eventually drastically drop.
The housing bubble burst, making
it very difficult to refinance.
Has this happened
In the 1980s, the Savings &
Loan market experienced similar
It is believed to be the cause of
a recession in the early 1990s.
“It’s not the government’s job to bail
out speculators or those who made the
decision to buy a home they knew
they could never afford.” – President
George W. Bush
He discussed a plan to bail out
citizens, especially those with good
Who is affected?
It’sa misconception that just
the poor are directly affected by
the subprime market.
There are those who believe
some lenders are inherently
The Housing Market…
•Single homes, new homes,
•Marion Gardner’s story.
– When compared to last year, sales of existing single
family homes fell 8.4 percent, to about 6.5 million.
– The median price of a new home in April dropped
0.9 percent from a year ago to $236,100.
– The median price of an existing home in May
dropped 2.1 percent from a year ago to $223,700.
– The West-sales were down 16 percent from last
– The South- sales were down 7 percent from last
– Midwest and Northeast- sales were down nearly 6
percent from last year.
– The practice of buying and selling land or
other property in order to profit by the rise
or fall in their market value.
– builders are putting in their contract a
penalty of $50,000 if the home is sold
within one year.
– If the home owner wants to sell within 18
months after buying, the builder has the
option of buying back the property at the
– Procedure whereby property pledged as
security for a debt is sold to pay the
debt in the event of default in payments
– One in ten homes in the city is now
Foreclosures & Speculation…
– San Francisco- the monthly cost of
renting an apartment is 45% of the
monthly cost of buying a home
– In Washington, D.C.- rental costs are
now just 59% of the cost of owning
– In Miami- rental costs are 63% of the
cost of homeownership,
- Home Depot
Higher cost of
Less Demand for $
Effects were seen