Mortgages in the Financial Crisis of 2007-2008

The American housing market crisis began with mortgage dealers who issued mortgages with terms unfavorable to borrowers, who were often families that did not quality for ordinary home loans. At this point in time, home-owning was like every American's dream. Some of these mortgages carried low interest rates in the early years that increased hugely to double-digit rates in later years. This made it easy for first-time home buyers, no matter their income or their ability to make a down payment, to own a home. 

Mortgage lenders sold these loans to a bank or government-chartered institutions created to buy up mortgages and provide mortgage lenders with more money to lend. This meant that the loans were getting chopped up and sold, split apart until they were widely distributed across many different banks. As long as housing prices kept rising, everyone profited. Mortgage holders with inadequate sources of regular income could borrow against their rising home equity. When the housing bubble burst, more and more mortgage holders defaulted on their loans. At the end of September, 7% of homeowners with a mortgage were at least one month past due on their payments, up from 5.6% form the previous year. By 2008, the mild slump in housing prices that had begun in 2006 had become a free fall in some places.