Strict Loan Standards Leave Some Buyers On Sidelines

For years, borrowers needed the Three C's in order to get a mortgage: Credit, Collateral, and Character.  It was accepted practice in the mortgage industry.  Customers would have to document their income, their debts, and their credit history.  Mortgage underwriters conducted exhaustive research on potential borrowers' finances.

Lenders Relax Borrowing Requirements

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The Lenders / House of Cards

In a quest to cash-in on the housing boom, many banks and non-bank lenders relaxed their long-standing rules. They lowered the standards borrowers needed to meet. They targeted potential customers who previously were unable to get mortgages.

Alternative Mortgages Open New Doors

These lenders created new types of mortgages that allowed borrowers with less-than-perfect credit to get mortgages. Using creatively-named loans such as Option ARMs and Hybrid ARMs, and hard-to-understand terms such as "piggyback" and "pay option negative amortization", they triggered a subprime tsunami that would nearly drown the U.S. economy.

One State Leads The Subprime Trend

California became ground-zero for the subprime mortgage industry. The sheer size of the state, along with the demographics of its population, and lack of regulation of the mortgage-related businesses made it prime territory for subprime predators.

Rags To Riches: Subprime Hits Big Screen

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Quick Loan/Sadek

By 2003, the biggest subprime lenders had set-up shop in the Southern California city of Irvine. Quick Loan Funding quickly became an active part of the industry. It's founder, Daniel Sadek, is a Lebanese immigrant with a third-grade education. At the height of his subprime success, Sadek's company was financing $200 million worth of mortgages a month, while Sadek was pocketing about $5 million a month in salary. He used some of that cash to finance a Hollywood film.  The movie went bust, and eventually Sadek's business did too.

Rebirth of Subprime

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Rebirth of Subprime

CNBC anchors and reporters discuss how subprime loans developed, why these loans should have been regulated more closely and how they ultimately fell apart.

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