Recent ongoing economic problems in the sub prime mortgage industry have caused many liquidity issues in the banking sector owing to foreclosures. This started in the end of 2006 in US and has triggered a global financial crisis during the year 2007 and 2008. The problem started when the US housing bubble burst out and the higher default rates in the sub prime market and other adjustable mortgage rate were made to higher risk borrowers who had lower income and bad credit history than prime borrowers.
Due to the rising housing prices and long term loan incentives, borrowers were more encouraged towards mortgages with the hopes that they will be able to get lower interest rates in the coming years. But when the housing prices started to fall in the year 2006-2007, refinancing became very difficult all over the US. The number of defaulters and foreclosures increased dramatically because the ARM rates were reset higher. In the 2007 survey, it was found that nearly 1.3 million U.S. housing properties were subject to foreclosure activity. It was 76% more than the year 2006. Economists believe that the sub prime defaults will go up to U.S. $200-300 billion mark. The sub prime crisis puts a downward pressure on the economic growth of the country.
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