This increased the banks’ propensity to make such loans on increasingly liberal and imprudent terms. Borrowers with very poor or insufficient creditworthiness were able to obtain mortgages far in excess of what they should have been able to, for houses that were far beyond their means.
In addition, these sub-prime mortgages were frequently granted to borrowers with limited or no credit history at variable interest rates, characterized by very low initial “teaser” rates, which would be sharply adjusted upwards after the initial period – typically after two years.