What is a subprime mortgage? 
Subprime mortgages refer to mortgages given out by lenders to borrowers with low credit ratings. These borrowers usually do not qualify for conventional mortgages. To compensate lenders for the higher risk associated to such borrowers, subprime mortgages are attached with an interest that is higher than a conventional mortgage.
How the subprime crisis started?
The current subprime mortgage crisis that is escalating in the United States started in 2006. Rising interest rates lead to increasing adjustable mortgage rates. This led to a higher cost of borrrowing and resulted in the subprime borrowers unable to service their mortgages. The higher interest rates coupled with declining property values caused a sharp rise in foreclosures.
By mid 2007, the large number of foreclosures led a few major subprime mortgage lenders to file for bankrupties. As the year approaching the end, more and more prominent financial institutions that have businesses in the subprime mortgage market reported huge losses.
Impact of subprime crisis on equity markets in Asia
The major losses in these financial institutions resulted in a nose dive in their respective share prices. It also brought about a ripple effect on the broader stock market in the United States. Soon, the effect was felt across Asia when the region's stock markets took a beating. It eroded a big portion of the gains from equities on the back of strong economic growth in Asia. As the subprime mortgage crisis continues, investors are cautious of equity markets for fear of a looming recession in the United States next year.
