can someone explaine how sub-prime mortgage mess is caused

Can someone explaine what’s the real problems behind the sub-prime mortgage mess? Will it be included in the L1 exam? Given its magnitude, I think it’s important to know for the exam. Thanks.

from what I know: Banks had loose lending policies for mortgages. A lot of people bought homes. Then, when these mortgages had their rates reset, some of these homebuyers had to default resulting in banks taking big losses. there is obviously more detail, but thats the ‘jist’ of it.

probably nothing to do with our exams … closest thing would be your CMBS, RMBS, CDOs mentioned in alternative investments…

It will not be on the exam because it’s not one of the LOS’s. I promise.

Dude, it’s not on the exam, but I was a mortgage banker up until March 2007. The banks were being stupid with their money and lending losers tons of money that shouldn’t have gotten loans in the first place. If a person can’t pay their cell phone bill on time and is late for rent multiple times, would you lend them 200k? Banks were doing it. Next in line is Fannie Mae. Watch the news. I bet you they will get into a ton of trouble soon. Freddie Mac is already in trouble. And Fannie Mae was more liberal on their loan guidelines, MUCH more liberal than Freddie Mac.