Quick Links
Authorised and regulated by the Financial Services Authority
Insight into the U.S sub-prime crisis
12.07.07
This week the Dow Jones led the way down as a result of the escalating sub-prime market crisis. We’ll take a brief look here at the background to the problem, and the story starts with the US housing market where around a quarter of new mortgages in recent years have been classed as sub-prime.
What happens is that these homebuyer loans can be packaged up by the lenders into tranches of Residential Mortgage Backed Securities, which are attractive to investors looking for high yields. Without going into detail, these packages are then broken up into another set of tranches. The key here is that each one has various levels of priority over monies to be repaid from the original mortgages, of which the lowest grade receives a below investment grade BBB rating.
Member Login
