Lenders into the so called “sub prime” market attempted to keep the pace of business up as the US housing sector slowed during last year. But they could do this only by lowering lending standards. Before long, arrears began to rise as some borrowers struggled to meet their commitments.
Once this deterioration in underlying asset returns had occurred, those with exposures inevitably began to see losses. Because this type of lending was via securitised structures sold into global capital markets, losses have been coming to light right around the world. In most cases, the losses are embarrassing rather than fatal for the institution concerned.