By Hu Fang

    WASHINGTON, Dec. 6 (Xinhua) -- The U.S. economy this year was jolted by a "quake", with its epicenter at the high-risk subprime mortgage market and its aftermath expected to linger well into next year.

    The "quake" hit the U.S. stock markets in early August and has since thrown those across the world into a violent tremor. The market turbulence now seemed gone after the Federal Reserve and other central banks injected billions of dollars into financial systems and cut interest rates.

    Investors' worries and fears, however, persist because troubles in the subprime market, which offers loans to people with lower credit and income, are still there.

    Subprime Troubles

    Troubles in the subprime market had their roots when the U.S. housing sector was experiencing a heady five-year boom until last year.

    Spurred by this seemingly never-ending housing boom, mortgage lenders became less cautious, loosening credit standards and offering loans to more and more subprime borrowers who otherwise would never have afforded to buy a home.

    To attract more home buyers, lender also came up with new mortgage products. Many subprime borrowers got loans that allowed them to make no down payment or to pay initial interest only.

    Many others took out adjustable-rate mortgages, which offered very low initial "teaser" interest rates that jumped much higher over the life of the loan.

    It turned out that both lenders and borrowers overlooked the risks hidden behind those loans.

    If the housing boom could sustain, just as subprime borrowers and lenders had wished, home buyers with lower credit and income would be able to refinance their homes or simply sell them when they had difficulties keeping up with their payments.

    Unfortunately, the once-sizzling housing market cooled down last year and slipped into the worst slump in the past two decades. Sales plunged and so did home prices. Interest rates, by contrast, were rising.

    Homeowners, especially those overstretched borrowers at the subprime market, were having troubles to pay their mortgage as higher rates kick in. As home prices slide and lenders tighten credit standards, homeowners can hardly refinance or even sell their homes.

    Steep penalties for prepaying home loans have made things even harder for homeowners. Inevitably, defaults are rising rapidly and foreclosures have climbed to record highs.