A/HRC/10/7 page 6 8. In the United States, subprime lending began surging in the mid-1990s. These loans comprised 8.6 per cent of all mortgages in 2001, soaring to 20.1 per cent by 2006. Since 2004, more than 90 per cent of the subprime mortgages have offered adjustable interest rates that increase sharply after an initial low-interest period.10 In recent years, most subprime loans were made by non-depository institutions, commonly referred to as mortgage originators. These companies borrowed millions of dollars to originate and fund mortgages. Originators only briefly owned the loans (typically for 60 to 90 days) before they were bundled with other loans and sold to secondary market investors in a process called securitization, allowing the originators to repay their creditors.11 9. The expansion of the subprime mortgage business was accompanied by inadequate appreciation of the risks by investors, the lack of due diligence by regulators and supervisors, the build-up of excessive leverage by financial institutions, and housing speculation and overbuilding during the boom period.12 Consumers were inadequately protected and often victims of abusive practices. Many subprime originators were no longer concerned with the terms of the loan or whether the borrower would be ultimately able to afford the loan. Instead, the originators’ incentive was to close the loan as quickly as possible, in order to be paid their origination fees, and then sell the loan to the secondary market. The problem became even worse for thinly capitalized mortgage brokers, who originated 63.3 per cent of subprime loan volume in 2006, and did not have enough of a stake in the outcome of the loans. 10. In the United States, some large, national subprime lenders had core competency in marketing and sales, not responsible lending.13 In other countries, like Spain, although the mechanisms and credit system were very different, other forms of subprime lending were practised: financing 100 per cent of the price of a house, initial interest-free mortgages for young people, etc.14 11. The value of real estate is partly tied to the availability of credit, so its extreme appreciation has been fuelled in part by these so-called “affordability” mortgages. Rather than be guided by responsible underwriting and deny certain applications, lenders and investors used artificial loan features to “qualify” borrowers. The end result was extreme risk layering in which 10 J. Atlas and P. Dreier, “The conservative origins of the sub-prime mortgage crisis”, The American Prospect, 18 December 2007. 11 P. Madigan, “Overview of the subprime foreclosure crisis”, Iowa Office of the Attorney General, September 2007 available at http://www.iowa.gov/government/ag/latest_news/releases/sept_2007/Foreclosure_ analysis.pdf. 12 See footnote 6 above. 13 See footnote 11 above. 14 El cielo está enladrillado: entre el mobbing y la violencia inmobiliaria y urbanística (Spain, Edicions Bellaterra, 2006).