The Value of Subprime Mortgage Essay Example | Topics and Well Written Essays - 3750 words

The Value of Subprime Mortgage - Essay Exampleot address prime mortgages, prime mortgages argon typically made to borrowers who have a strong credit history and can demonstrate a capacity to repay their loans...2 On the other hand the term subprime is generally classified as mortgages or loans made to borrowers with an un sought after or elevated credit history or loan to borrowers with desirable credit history that exceeded the property value3 In such a case the borrower is typically charged with a higher interest rate and up-front and continuing cost4 in govern to balance the risk associated with the likelihood of delinquencies or even foreclosure.5 In the article Prime Mortgages -Think Twice the writer, Michael Challiner points forbidden that the subprime market accounts for over 4000 types of subprime mortgages. Furthermore, Challiener emphasized that the subprime mortgages are extremely complex, higher fees tend to be charges, the amount contribute compared to the value is li kely to be lower and the interest higher than in the rest of the mortgage market.6The rapid growth of subprime mortgage loans began in the late 1990s.7 The growth was a result of the three pieces of federal regulations. First in 1980, Congress enacted the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980 under designation V which preempted the interest rate cap.8 Two years later in 1982 the Alternative Mortgage exertion Parity Act (AMTPA) was enacted which provided for flexibility in the use of interest rates and balloon payments.9 By 1986 another law emerged this time the Tax Reform Act (TRA) which prohibited the deduction of interest on consumer loans, yet allowed interests on mortgages for a primary residence as well as one extra home.10 As such, the late 1990s regulations show the emergence of the subprime market into the wider capital markets as it quickly secured a place in both the home purchase and home equity mortgage market.11This paper ex amines the