1Subprime Précis

Until recent events, few outside the real estate industry had even heard of a subprime mortgage. But this formerly obscure financial vehicle has grabbed its share of attention because of its ravaging effect on the U.S. economy and global financial markets.

Simply defined, a subprime mortgage is just a loan made to someone with a weak or troubled credit history. Historically, it has been a peripheral financial phenomenon, a marginal market involving few lenders and few borrowers. However, subprime home buyers unable to make good on their mortgage payments set off a financial avalanche in 2007 that pushed the United States into a recession and hit major economies around the globe. Financial markets and the economy will ultimately ...

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