House-price fall precipitated subprime collapse
The reason for the raft of subprime defaults was a sudden fall in house prices, which made prepayment of loans a less attractive option, finds research from the St Louis Federal Reserve.
The results of the research reveal subprime mortgages originated between 1998 and 2005 had extremely high prepayment rates and that a sudden reversal in house price appreciation increased default in this market because it meant subprime borrowers could no longer prepay the loan through refinancing or selling the
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