Mortgage Crisis

Should the government bail out borrowers in trouble?


More than 2 million borrowers will lose their homes to foreclosure because of subprime mortgage lending in recent years. With the housing market booming, lenders enticed many lower-income people into buying homes they couldn't afford by offering adjustable-rate mortgages (ARMs) with temptingly low initial teaser interest rates. Many loans didn't require down payments or documented proof of income. Moreover, with real-estate prices rising many homeowners used the higher value of their homes to get second mortgages to pay for extras like remodeled kitchens. But this year the housing market crashed and the party ended: The low teaser loans reset at higher interest rates, and many borrowers defaulted on their new, higher mortgage payments. When the dust settles, investors who bought mortgage-based securities stand to lose ...

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