The surge in mortgage delinquencies in the past few months is squeezing lenders and unsettling investors world-wide in the $10 trillion US mortgage market. The pain is most apparent in subprime mortgages…[but] there are signs it is spreading to other parts of the mortgage market. Subprime mortgage originations climbed to $625 billion in 2005 from $120 billion in 2001… Like other types of mortgages, subprime home loans are often packaged into securities and sold to investors, helping lenders limit their risks.
Subprime mortgages are loans made to borrowers who are considered to be higher credit risks because of past payment problems, high debt relative to income or other factors. Lenders typically charge them higher interest rates -- as much as four percentage points more than more-credit-worthy borrowers pay -- one reason subprime mortgages are among the most profitable segments of the industry.
The Journal says that they have also have been among the fastest-growing segments. Subprime mortgage originations climbed to $625 billion in 2005 from $120 billion in 2001, according to Inside Mortgage Finance, a trade publication. Like other types of mortgages, subprime home loans are often packaged into securities and sold to investors, helping lenders limit their risks.
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