Given the scope and complexity of the financial crisis, it is sometimes difficult to recall that the precipitating event related to defaults on subprime mortgages. Although many worried that rapidly rising home prices were creating an unsustainable housing “bubble,” few actually predicted the impact of a sustained decline in home values. Beginning in 2007, as adjustable rate mortgages reset to higher interest rates, subprime borrowers with underwater home values found they were unable to refinance at affordable rates. The resulting delinquencies and foreclosures led to startling losses in the mortgage related securities markets, spreading quickly to the broader credit markets. Looking back, the historic U.S. emphasis on home ownership fueled the development of a capitalraising superstructure that relied on the creation and sale of mortgage-related securities.

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