The financial crisis of 2008 Flashcards
What is subprime lending?
This refers to making loans to people who have difficulty keeping up with repayment schedule. These loans are characterized by higher interest rates, poor quality collateral and less favorable terms in order to compensate for the higher credit risk. Many of these loans were packaged into mortgage backed securities, which eventually defaulted, contributing to the financial crisis.
What is the housing bubble?
This is thought to be the primary cause of the 2008 recession the United States. It refers to the significant drop in the price index of houses between 2006 and 2012. Home prices peaked in 2006, after which they started to decline to an all time low in 2008, which caused the housing bubble to burst and resulted in a credit crisis.
What is Freddie Mac?
Freddie Mac is a US mortgage giant who decided to no longer accept subprime loans in 2007. Soon after, subprime mortgage lender New Century Financial filed for bankruptcy protection.
