Final answer:
The HUD 2010 report detailed the impact of subprime loans on the economy, which contributed to the 2008 financial crisis through risky lending practices, the bundling of loans into complex securities, and the assumption of continuous growth in housing prices that led to widespread defaults and the housing market crash.
Step-by-step explanation:
The HUD 2010 report highlighted the consequences of subprime loans on the economy, particularly as it pertains to the housing market crisis of the mid-2000s. These loans were offered to people with poor credit, initially at a low rate, which later increased, leading to widespread defaults when borrowers could not keep up with the payments. The securitization of these high-risk loans facilitated by changes in finance and banking laws, allowed financial institutions to sell these debts as bonds and led to the creation of complex financial securities such as collateralized debt obligations (CDOs) and credit default swaps. These practices inflated the housing market into a bubble as the value of homes continued to rise based on the ease of obtaining a mortgage, which ultimately led to a severe economic downturn when the bubble burst.
Instrumental in this process was the securitization food chain, where risky loans were bundled and sold in tranches to investors. An investor's willingness to absorb a certain percentage of losses, under the assumption that housing prices would continue to climb, exacerbated the flood of subprime lending. These riskier loans carried higher interest rates, which were attractive to lenders despite their instability. This system collapsed when a significant number of borrowers began to default, sparking a financial crisis that was felt worldwide.