The current crisi started in the housing market when the appreciation stopped, prices began to deflat and homeowners started defaulting on their mortgages. This scenario hurt the value of the debt securities tied to “subprime” mortgages that were made to high-risk borrowers. All these factors lead to big losses at investment banks and hedge funds.
Almost all of the credit problem areas today have one common denominator: housing. Several years back, as the housing market got hotter, lenders lowered their credit standards. Those companies allowed people with bad credit records purchase homes at inflated prices, just to bolster the company’s bottom lines. Some buyers even put no money down towards buying their dream home, condo, or even second (vacation) home.
