yielding securities, some lenders began loosening underwriting standards for subprime mortgages in late 2005. loans to subprime borrowers were approved with high loan - to - value ratios and incomplete income documentation. had house prices kept appreciating, loan - to - value ratios would have fallen a more in - depth discussion of developments in the subprime mortgage sector can be found in karen e. dynan and donald l. kohn ( 2007 ), “ the rise in u. s. household indebtedness : causes and consequences ”, finance and economics discussion series 2007 - 37 ( washington : board of governors of the federal reserve system, august ), http : / / www. federalreserve. gov / pubs / feds / 2007 / 200737 / 200737pap. pdf. calculated from table 4, p. a132, in robert b. avery, kenneth p. brevoort, and glenn b. canner ( 2006 ), “ higher - priced home lending and the 2005 hmda data ”, federal reserve bulletin, vol. 92 ( september 8 ), pp. a123 - 66, www. federalreserve. gov / pubs / bulletin / 2006 / hmda / bull06hmda. pdf. and some borrowers would have been able to refinance, perhaps into a prime loan with a lower interest rate. but, instead, as the housing market softened and interest rates rose, delinquencies in the adjustable - rate subprime market began to soar and reached nearly 15 percent in july. 6 among other types of nonprime mortgages, delinquencies on fixed - rate subprime mortgages have been fairly steady at less than 6 percent ; rates on mortgages in alt - a pools have increased to nearly 3 percent, up notably from the 1 percent rate of only a year ago. the rise in delinquencies in the subprime market has led to the collapse of some large subprime lenders and inflicted substantial losses on holders of subprime residential mortgage - backed securities ( rmbs ) and of some collateralized debt obligations ( cdos ). as a result, underwriting standards have been tightened, and fewer households are qualifying for subprime loans. in addition, some borrowers apart from the subprime segment are reportedly finding it more difficult to qualify for loans or are having to pay more for them. these

reasons. first, the financial industry incorporated information technology into its business processes many years ago and since then has encouraged innovations in business process to achieve efficiency and security. as a result, industry participants are extremely knowledgeable about technology and the related operations risk. second, financial institutions understand that it is in their best business interest to make business continuity planning an executive management issue, requiring top - level involvement and not insignificant investment. preparations for the century date change gave us a much clearer understanding of the financial system's dependence on technology and on the complexities of managing operations risk. once institutions understood the considerable business risks that would result if they could not serve customers, they moved the management of y2k preparations out of the back office and onto the desks of product - line and senior managers. firms understand that they must manage not only business risks flowing from operational issues but also inherent reputational and legal risks. the century date change provided other benefits as well. in preparing for y2k, financial institutions modernized and incorporated security products and procedures into their information systems. they also updated and tested contingency plans and backup facilities. we found that because of the staff training and industry testing that occurred around the century date change, employees of financial institutions and within our own agencies were still relatively well - informed about contingency procedures and arrangements, and followed them. though not perfect, these plans worked well. third, financial institutions have long understood the need for strong internal controls and physical security. as banks increased reliance on information technology, they naturally incorporated measures to ensure the security of information. moreover, financial institutions recognized immediately that the increasing role of information system networks and the internet in the financial markets engendered new risks, and they became leaders in addressing cyberprotection issues. in 1999, industry participants established and funded one of the first information sharing and analysis centers ( isacs ). more than forty of our largest banks, securities and insurance firms, investment companies, and financial utilities, representing a significant portion of assets in the financial system, participate in the isac. the isac maintains an industrywide database of electronic security threats, vulnerabilities, incidents, and solutions. security specialists analyze reports and distribute to members warnings and information about threats and solutions or mitigation procedures. financial institutions also actively participate in a number of other information - sharing organizations, such as the federal computer incident response center ( fedcirc ) and the system administration, networking, and security institute ( sans ).