As these loans began to reset and the housing market began to cool off during 2006 (i.e., growth in house prices decreased), these clients found themselves unable to meet the higher payment obligations and were not able to refinance their loans.
It was during this period that non-performing sub-prime mortgage loans increased rapidly.” “Concurrent with the granting of sub-prime mortgage loans, certain institutions securitised their mortgage loans. Numerous methods and instruments were developed to facilitate this process, and the instruments became increasingly complex. Instruments such as mortgage-backed securities and collaterised debt obligations offered tranches of risk, ranging from high-risk equity tranches to low-risk senior tranches.