 In 2002, subprime mortgage originations totaled about $200 billion or 7% of the mortgage market.  Three years later these originations on these loans grew to over $600 billion or 20% of the market.  Subprime mortgages generated the highest fees to the predatory lenders.

 Adjustable rate mortgages (ARMs) are loans whose interest rates adjust up or down with changes in the Fed Funds rate.  Typically subprime loans were a hybrid 2/28 or 3/27 instrument.

 The mortgage rate is fixed for the first two years or three years and then switches to an adjustable rate for the remaining life of the mortgage.  One-third of ARMs taken out between 2004 and 2006 began with "teaser" rates below 4%.

 US Federal Reserve lowers Federal Funds Rate 11 times, from 6.5% (May 2000) to 1.75% (December 2001).  The Fed Funds rate bottomed out in 2004 at 1%.  This created an easy-credit environment that fueled the growth of subprime mortgages.

 Subprime loans have interest rates 3% to 5% points higher than prime mortgages.  These mortgages also have higher points and fees, and when these are factored in, the average subprime loan often has double digit interest rates that are 4% to 6% points higher than prime mortgage of similar terms.

 The Fed Funds rate went from 1% in June of 2004 to 5.25% in June of  The variable portion of the mortgage would kick in after the fixed two or three year period, causing payments to dramatically increase leading to increased defaults.

 When 2/28 and 3/27 mortgage teaser rates ended, borrowers had a reason to refinance before their interest rates jumped.  However, about 80% of subprime mortgages had prepayment penalties, where only 2% of prime loans did

 The standard test for the ability to make payments is the mortgage payments, taxes, and insurance should be no more than 30% of gross income  With subprime mortgages, this number approached 60%.

 Delinquency rates on subprime adjustable rate mortgages skyrocketed from about 12% in 2007 to about 36% at the end of  This led to a rapid loss in home values starting in In 2008, prices fell by 20%.  Housing prices rebounded slightly in 2009, with the $8,000 first-time home buyers tax credit.  Prices started to fall again when the credit expired.

 Many subprime loans were securitized (bundled and sold as an investment).  Securitization allows for credit risk to be transferred from banks to investors.  The financial crisis took place because banks did not follow the securitization business model and became investors in Mortgage Backed Securities.