Subprime variable home loans to borrowers

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Reference no: EM132127021

The banks gave out Subprime Variable Home Loans to borrowers that were very questionable at their ability to support the loans. The homeowners took loans that they were not able to afford as the variable rate loan increased, because they were told that houses always appreciated in value. Even if they couldn’t afford the mortgage after the “balloon payment” or the “teaser rate” expired, they would have built up equity in the house, and make a profit.

Unfortunately, this didn’t happen in 2008, and many homeowners who were “underwater” (their house was worth less than their mortgage), just left their properties. Discuss who you think was responsible for these loan defaults: the bank, the homeowner, or both?

Reference no: EM132127021

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