Essay on The Subprime Mortgage Crisis
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The subprime mortgage crisis
The argument over who is at fault for the housing market collapse has been a heated issue amongst government, politicians, banking institutions, and mortgage lenders. The subprime mortgage crisis is an ongoing financial issue and real estate nightmare for the United States economy. A dramatic increase in mortgage delinquencies and foreclosures has caused a significant adverse effect on banking institutions and financial markets. Due to this mortgage crisis, the housing market subsequently has crumbled resulting in a record numbers of home foreclosure and more are still looming in the horizon. For many, the dream of home ownership has become a real nightmare. Who is really at fault? Should minorities groups…show more content…
Joseph E. Stiglitz, a professor at Columbia University points out the causes proposed include the inability of homeowners to make their mortgage payments, due primarily to adjustable-rate mortgages resetting, borrowers overextending, predatory lending, speculation and overbuilding during the boom period, risky mortgage products, high personal and corporate debt levels, financial products that distributed and perhaps concealed the risk of mortgage default, bad monetary and housing policies, international trade imbalances, and inappropriate government regulation, (Stiglitz, 2008).
Subprime mortgages loans were those attractively packaged and offered to people who normally did not qualify to get an ordinary loan. Because the default rate is much higher, banks would charge a lot more for people in this high risk group. That will mean people who could not qualify for a home loan ended up paying more for their mortgage. These loans were provided to people with poor credit or no credit from poor neighborhood, and minorities groups. Specially targeted were the African-American and Hispanics groups. It has been argued that subprime mortgages and lending practices towards minorities by the banking and mortgage lending institutions has been a growing and heated political discussion. “Democrats and their advocacy groups also prodded Fannie Mae and Freddie Mac to buy the high-risk NINJA (no
Solving The Foreclosure Crisis Essay
In order to figure out how to solve a crisis, you need to first figure out the steps and factors involved that led to the problem to begin with. Once those steps and factors are laid out, then the work begins to ensure that history does not repeat itself and those hard lessons learned can be used as teaching tools for those in charge of problems that arise in the housing market in the future. One of the many benefits of pursuing a college degree would be the knowledge gained about the economy and how poorly planned past actions has created the current foreclosure crisis. I am taking a finance class and we are discussing this subject so it is fresh in my mind. There were multiple origins that initiated and worked hand in hand in order to lead up to the current financial crisis that we are in now; hence the foreclosure crisis.
One huge problem was the extremely relaxed monetary policy that was not being enforced amongst most American banking institutions. The agencies that are in charge of regulating the financial institutions were not doing their job someone decided that there was no need to regulate during an economic boom for fear of stifling economic growth. Another lending practice used by banking institutions involved lending money with an interest rate that was too low. The combination of easy credit and low interest rate, created the desire and demand for investments in the real estate market. This demand drove up the price of houses on the market very high. Along with the wise real estate investors, came the new uneducated group of homeowners who should not have became investors. Those same groups of uneducated homeowners were people who were purchasing homes that they clearly could not afford and signing contracts for loans that they had no clue what was in store for them once the initial ‘teaser’ interest rates had expired; nor did they read what they were signing. I am sure there were a percentage of these lending officers belonging to these banks who were also deceptive. These lenders offered adjustable rates to home owners that provided them with a ‘teaser’ mortgage payment for the first few years and then significantly higher payments after wards. There was a combination of lenders wishing to make a quick buck and the homeowner who was willing to sign the dotted line in order to get the house that they wanted. Too bad this crisis was not just as simple as a bank giving out a loan that a homeowner could not afford to pay.
In an effort to make even more profit, banks were taking these risky mortgages, packaging them, and selling them off to investors. This was working well for them by making handsome returns until the housing bubble burst. This housing bubble burst once the Federal Reserve starting raising interest rates. As the interest rates rose, those people holding adjustable rate mortgages could no longer afford those large numbers of adjustable rate mortgages. Once the mortgage payments became too high to...
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