What were subprime mortgages?
Subprime mortgages are loans that were granted to people who did not meet the traditional credit profile. And it is that prospective homebuyers found it difficult to obtain mortgages, if they had below average credit histories, so they provided small down payments or took out loans with large payments.
Context and causes of the crisis
Low interest rates led to an increase in the demand for generous mortgage loans and fierce competition from banks, mainly from the United States, to gain a better market share, at the cost of not meeting the evaluation criteria, which allowed that people with a questionable credit category could buy homes.
Mortgages considered subprime became available through lenders and banks that financed them by integrating them into various packages that were sold to investors. New financial products on the market were used to spread these risks, including private label mortgage-backed securities (PMBS), leading to the labeling of most mortgage financing as subprime .
Investors who bought PMBS initially made a profit, but when subprime mortgage borrowers couldn’t pay they sold their homes, made a profit and paid off their mortgages, or borrowed more at higher market prices. All this caused a snowpack that was increasingly unsustainable for the market.