Document Type




Format of Original

26 p.

Publication Date



Federal Reserve Bank of Saint Louis

Source Publication

Federal Reserve Bank of St. Louis Review

Source ISSN



This paper describes subprime lending in the mortgage market and how it has evolved through time. Subprime lending has introduced a substantial amount of risk-based pricing into the mortgage market by creating a myriad of prices and product choices largely determined by borrower credit history (mortgage and rental payments. foreclosures and bankruptcies, and overall credit scores) and down payment requirements. Although sub prime lending still differs from prime lending in many ways, much of the growth (at least in the securitized portion of the market) has come in the least-risky (A-) segment of the market. In addition, lenders have imposed prepayment penalties to extend the duration of loans and required larger down payments to lower their credit risk exposure from high-risk loans.


Published version. Federal Reserve Bank of St. Louis Review, Vol. 88, No. 1 (January/February 2006): 31-56. Permalink. © 2006 Springer. Used with permission.

Originally published in Federal Reserve Bank of St. Louis Review. © 2006 by the Federal Reserve Bank of St. Louis. All views expressed herein are those of the author(s) and not necessarily those of the Federal Reserve Bank of St. Louis or the Federal Reserve System. Used with permission.

Anthony Pennington-Cross was affiliated with Federal Reserve Bank of St. Louis at the time of publication.