As and when interest rates spiralled up, the house market was impacted - the house prices, as expected, started to dwindle. The rising benchmark rates also made mortgage loan repayments much weightier, thereby adding financial burden to the borrowers.
In the absence of additional income supplements, it naturally followed that default and foreclosure rates shot up - almost hand-in-hand with the Fed rates.
The falling house prices , coupled with the rising default rates, landed the mortgage loan lenders in a financial strait-jacket - and eventually with some major players going into bankruptcy.
The rout of the subprime mortgage market was certainly going to affect the domestic consumption. The market confidence was instantly killed off, leading investors to believe that the share market would crash as a result of an increasingly bleak prospect of the United States' growth.
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