Can you explain ot me what the subprime credit crisis means?

i heard the word subprime credit/mortgage, and i dont know what it means and what can change it, and why it happened...can you please explain this to me.|||The Sub Prime Credit crisis is commonly referred to borrowers with fair and poor credit but it really is not. People with poor credit were not able to get 100%.


Here's what happened. During 2003 thru 2006 Lenders (not brokers) were offering money to homeoweners or buyers of homes with high credit scores up to 100% of the value of their home. The money was lent in two loans, not one, commonly called and 80/20 where the 1st mortgage was at 80% and the 2nd mortgage was at 20% of the value making both loans totalling 100%. Greenspan had lowered short term rates so buyers were getting into homes with no money down and financing 100% expecting the values to continue to rise. The first mortgage was generally written on a 2 or 3 year fixed rate and the 2nd mortgage on a 15 year fixed rate. Greenspan started raising rates. The effect was not immediate because the loans were not set to re-adjust until 2006 and 2007 and 2008. The interest on the first mortgages started to adjust from 5.75% to 8%, then to 10% and the owners could not and cannot afford their payments. Properties stopped selling and foreclosures rose and soon the 2nd mortgage holder was left holding a bag of air. Now that same home that sold for $500,000 is now worth $400,000. The 2nd mortgage is not going to throw money on the first mortgage to keep it current so the property goes into default. Billions of dollars in 2nd mortgage money are now worthless and property values keep falling. Builders are holding Fire Sales to sell inventory thus insuring a more drastic drop in values. Also the Federal government has told the lenders that they must re-allocate for losses as their loans which cannot be sold to anyone must now have a portion set aside for loss. This is called a loss reserve. The lenders who have survived cannot make loose loans as no one will buy them thus causing a credit crunch. The credit crunch is basically the inability of a homeower or buyer to obtain financing at a high loan to value ratio based on what he, she or they STATE what their income is. This loan is basically still available, not to 100%, but only to those clients with high credit scores say above 740. Whereas 1 year ago someone with a 550 FICO could get financing with a low loan to value at 8% or less, now, if they can get it, the rate is 10%+, hence a credit crunch.





Now the short sales are starting to impact but the lenders have too much at stake so for the first time in modern history we are going to see the original homebuyer or homeower renting their home from the lender who made them the bad loan in the first place. The lenders will hold on to the properties until the next boom happens or when they can sell the property. There are trillions of dollars at risk and the lender will look out for themselves as they always have.





This credit crunch is no where close to the one in the early 1980's when the prime lending rate was 21%. Just think about home loans at 17%|||also known as the credit crunch, i knw it has something to do with fixed rate mortgage and the recent low interest rates, but im not sure exactly what happened.