"People were in a euphoria and were willing to spend anything to be in a house," said Chris Sipe, a lender with America East Mortgage, on Carroll Creek in Frederick .

When subprime loans began in the 1980s, the euphoria was preceded by more practical concerns, said Edward Prescott, a research economist for the Federal Reserve Bank of Richmond.

In the late 1990s, databases and analytical tools were developed to more accurately assess loans based on risk, Prescott said.

In the old days, the price was the same whether a bank made a loan or not. The new tools enabled the lenders to create different types of loans, with charges depending on the risk.

Housing appreciation enabled lenders and borrowers to solve problems in new ways and tap into the value of the home in which they lived.

"The traditional subprime loan was a way for lenders to refinance a prime loan that was in danger of being lost," Prescott said. "A customer might have lost a job or had sudden medical expenses. The wealth in the house could be tapped into."

A few years later, subprime loans became a way for people to buy a house that they couldn't qualify for under traditional loan standards, Prescott said.

Subprime loans were most sought after from 2002 to 2006, Sipe said, and the loans existed because market appreciation lessened the risk.

An adjustable-rate mortgage (ARM) such as a 2/28, or two years at a fixed interest rate and 28 years at a variable rate, were created because homes were appreciating at 15 percent a year, he said.

These loans were called Band-Aid loans, because the intention was to refinance after two years. The 2/28s were seen as a way to get out of the rent rat race.

"When homes stopped appreciating, the banks were left holding the bag," Sipe said.

Some subprime loans also featured escrow waivers, in which lenders did not include money in each month's mortgage payment for property taxes and fire insurance, Sipe said.

When the taxes and insurance became due at the end of 12 months, the homeowner had to come up with the money.

Mortgage lenders and brokers, those who bring the lenders and borrowers together, often would charge front-end fees and commissions before the loan was processed.

The lenders and brokers would also add other fees at settlement, Sipe said.

The back-end fees would be based on the loan rate, and those fees would either pay another commission to the lender or another premium to the broker.

The borrowers usually didn't know about the added fees until settlement, sometimes not even then, Sipe said.

Because home values quit appreciating, then started to decline, people were not getting new subprime loans, Prescott said.

The delinquency and default rates became very high. By the fourth quarter of 2007, 20.43 percent of adjustable prime rate loans nationwide were seriously delinquent -- 90 days past due or in foreclosure, Prescott said.

"My guess is that these specialized products are all out of business now," he said.

SUBPRIME LENDING & FORECLOSURES Homeowners around the nation are struggling to make mortgage payments, and Frederick County is no exception. The map below show the area with the lowest and highest concentration of subprime mortgage loans. Click the map for a larger image. SEARCHABLE DATABASE Search the list of foreclosures filed in Frederick County Circuit Court from Jan. 1 to March 18, 2008. BIZ BLOG Business editor Cliff Cumber blogs about the project. Click here to check out his blog. THE ECONOMY & ME This new online-only section houses all sorts of stories that come our way on the economy, as well as tips consumers can use to stretch their dollar a little bit further. Click the graphic to go to the section. RELATED STORIES Foreclosure: A far-reaching problem Published on May 04, 2008 Ellen Scrivens reminisces about the house that she lost due to foreclosure last August that is located off Burning Bush Drive.more » Getting hit from all sides Published on May 04, 2008 In 2006, 455 foreclosures were filed in Frederick County Circuit Court. In 2007, that number more than doubled to 1,025. more » Officials seek to help foreclosure victims Published on May 04, 2008 People facing foreclosure, or who know someone who is, will have the opportunity Monday night to hear from someone who can help. more » Comptroller: state efforts to stem Published on May 04, 2008 The effect of the foreclosure crisis will hit hardest at local budgets, according to the state's chief tax official. more » Borrowers' euphoria clouded subprime risks Published on May 04, 2008 People were so happy to be in a home that the risks of the subprime loans they signed up for went right over their heads. more » Budgeting measures may protect county from foreclosure trouble Published on May 04, 2008 With conservative budgeting, Frederick County is prepared financially for effect from the local economy caused by the foreclosure crisis. more » Signs of trouble Auctioneers saw dangers of subprime loans coming Published on May 04, 2008 Auctioneers saw it coming. They knew the subprime loan frenzy would cause many homeowners to mortgage their futures. more »