Subprime mortgages were a product of the overheated housing market that ended in 2005. Before 2005, real estate was in a very strong seller’s market. Housing prices increased at lightning speed and many buyers with poor or bad credit were unable to qualify for a mortgage. Out of this situation grew the subprime lending industry, which provided borrowers who could not qualify for credit with mortgages, loans, credit cards, etc. The subprime mortgage by definition is a loan made to a person who cannot qualify for a mortgage at a favorable rate due to low credit scores, bankruptcies, financial delinquencies, and other blots on his or her credit.
While the initial idea was to allow an entire segment of society to be homeowners, the good intentions quickly were taken over by unscrupulous practices. Once the real estate market turned from a seller’s market to a buyer’s market, the already weak subprime lending industry suffered significantly rising numbers of defaults and foreclosures primarily due to the inability of lenders to refinance a subprime mortgage.