On September 15th, 2008, 15 years ago to the date, Lehman Brothers declared the largest bankruptcy in history, following the subprime mortgage crisis.
When housing prices dropped and homeowners couldn't afford their payments or refinance their mortgages, they defaulted on their loans. Scores of people had their homes foreclosed, and mortgage-backed securities made up of bundled subprime loans also tanked, thrashing investors.
In 2008, the global economy crashed.
The significant collapse of Lehman Brothers was primarily attributed to a multitude of high-risk mortgages that were propping up an inherently unstable financial system. Many homebuyers found themselves in situations where they couldn't meet the mortgage payments, leading to defaults on their loans. This, in turn, reverberated throughout Wall Street, leaving these borrowers exposed to the threat of foreclosure.
Fast forward fifteen years, and housing experts emphasize that obtaining a mortgage one can comfortably manage over the long term is now a much safer approach.
Susan Wachter, a professor specializing in real estate and finance at the Wharton School at the University of Pennsylvania, noted, "Prior to the financial crisis, borrowers often made the assumption that if a lender was extending a loan, it must be a safe option. However, that assumption turned out to be incorrect."
Qualified Mortgage standards prohibit interest-only loans and sizable "balloon" payments, ban excess fees and require lenders to verify a borrower's income, assets and debts.
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