Subprime Lending

August 7, 2007

Signs that the crisis in the US subprime mortgage market is spreading to higher-quality mortgage loans contributed to a dramatic sell-off in credit and equity markets this week, as lenders reported significantly lower second-quarter earnings and investors ran aground on mortgage-related losses.

The latest bout of mortgage market malaise centres on so-called “Alt-A” home loans, in which late payments and defaults are running at four times the historical rate. More

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