so subprime was doing well and houses were built, right?
and then interest ates went up for monthly payments or something along the lines, and basically the monthly payments shot up. that and other things eventually led many subprime borrowers to stop their payments and foreclose their houses?
so investors thought property values always rise. subprimes were traded on the market. but the value of the houses went down because too many houses, too many foreclosures, and houses lost value as compared to initial valuation. its stocks are perceived to be worth less. confidence goes down and people sell sell sell. yes?
well, i don’t understand why sell sell sell would lead a company to collapse, but that’s a different question. if it does, then my question is, would the subprime still happen if the houses taken back by the lending institutions did not lose value? if the initial loan was $100,000, and thus far the borrower has returned $10,000 (whether into principal or interest), and then he defaults and the lending institution takes the house and finds the house is worth $90,000 and manages to sell it at that price, then what is the problem other than no profit being made?
i don’t quite understand.
if the subprime practise had gone on as it did, even with loans being given to people to default years later, but if property prices did not fall but at least grew with the rate of inflation, would a crisis have occured? perhaps, i am not sure why the crisis occured. my understanding so far is that 1) subprime loans resulted in a lot of defaults, 2) property prices dropped, 3) people lose confidence.
but if number 2 did not happen, would the whole chain of events not occur? (sure another crisis of another kind might have happened later, but is today’s crisis caused by number 2?)
the lending institution would take back the house and even without liquidating it, as long as it was not losing value, wouldn’t the investment still be safe (no loss, though not very much profitable?)
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