What is meant by "sub-mortgage" market?

Question

And what are they talking about that this would lead to problems with the rest of the markets in the U.S.?

Answer 1

I believe you might be referring to sub-prime mortgage market.

These are mortgages lent to people who are not good lending risks. In other words there is an excellent chance they will not be able to pay them back.

Many of these loans were lent at variable interest rates. This means that when rates increase, there is even a better chance that the borrower will not be able to pay back the loan.

Now on top of all of this housing prices are not increasing currently. So all those foolish lenders who lent $250,000 to a sub-prime borrower to buy a house that is now worth $175,000 is going to be stuck holding the bag. Serves them right.

We are potentially talking trillions. Almost as much as Bush has wasted in Iraq. It could lead to a general banking collapse with the government bailing out everyone as they did with the S&Ls.

If this all comes about, you can thank your buddy Allen Greenspan who graciously gave us free money from 2001-2004 so that the banks could write all of the sub-prime mortgages and cause a general inflation in property values as every Tom, Dick, and Harriet decided to buy a house they could not afford because they knew that next year the house would be worth $25,000 than they paid for it.

It is not just the sub-prime mortgages that are in trouble either. I expect many of the prime mortgages might also go into default. Heck if you bought a house for $1,300,000 and now it is worth $850,000 and the interest rate just went up 2%, would you not be tempted to give it back to the bank?

Answer 2

An arrangement in which a mortgage lender pledges a mortgage as collateral for his/her own loan