Borrower cost associated with subprime lending is driven primarily by two factors i.e. credit
history and down payment requirements while in the prime market, borrower cost is primarily driven by the down payment alone, given that minimum credit history requirements
Upfront costs include application fees, appraisal fees, and other fees associated with originating a mortgage.
Continuing costs include mortgage insurance payments, principle and interest payments, late fees and fines for delinquent payments, and fees levied by a locality (such as property taxes and special assessments)
These costs are associated both with prime and subprime lending but they are higher or the latter.
Subprime Mortgage and US Recession
The subprime mortgage financial crisis in US spread to the world in 2007. Home owners were unable to meet financial commitments lenders were left with means to recoup their losses. This has led to a severe credit crunch, threatening the solvency of a number of marginal private banks and other financial institutions.
This has been cited as the reason for declines in stock markets worldwide, several hedge funds becoming worthless, and bankruptcy of several mortgage lenders.
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