Home Loans And Bear Stearns ( Jpmorgan Chase Bank

The mortgage crisis of 2007 marked catastrophe for millions of homeowners who suffered from foreclosure and short sales. Most of the problems involving the foreclosing of families’ homes could boil down to risky borrowing and lending. Lenders were pushed to ensure families would be eligible for a loan, when in previous years the same families would have been deemed too high-risk to obtain any kind of loan. With the increase in high-risk families obtaining loans, there was a huge increase in home buyers and subsequently a rapid increase in home prices. As a result, prices peaked and then began falling just as fast as they rose. Soon after families began to default on their mortgages forcing them either into foreclosure or short sales. Who was to blame for the risky lending and borrowing that caused the mortgage meltdown? Many might blame the company Fannie Mae and Freddie Mac, but in reality the entire system of buying and selling and free market failed home owners and the housing economy.

The housing crisis of the late 2000s rocked the economy and changed the landscape of the real estate business for years to come. Decades of people purchasing houses unfordable houses and properties with lenient loans policies led to a collective housing bubble. When the banking system faltered and the economy wilted, interest rates were raised, mortgages increased, and people lost their jobs amidst the chaos. This all culminated in tens of thousands of American losing their houses to foreclosures and short sales, as they could no longer afford the mortgage payments on their homes. The United States entered a recession and homeownership no longer appeared to be a feasible goal as many questioned whether the country could continue to support a middle-class. Former home owners became renters and in some cases homeless as the American Dream was delayed with no foreseeable return. While the future of the economy looked bleak, conditions gradually improved. American citizens regained their jobs, the United States government bailed out the banking industry, and regulations were put in place to deter such events as the mortgage crash from ever taking place again. The path to homeowner ship has been forever altered, as loans in general are now more difficult to acquire and can be accompanied by a substantial down payment.

In 2008 the real estate market crashed because of the Graham-Leach-Bliley Act and Commodities Futures Modernization Act, which led to shady mortgage lending or “liar loans” (Hartman). The loans primarily approved for lower income and middle class borrowers with little income or no job income verification, which lead to many buyers purchasing homes they could not afford because everyone wants a piece of the American dream; homeownership. Because of “reckless lending to lower- and middle-income borrowers who could not afford to repay their loans many of the home buyers lost everything when the market collapsed” (Tankersley 3). Homeowners often continued to live in their houses for months or years without paying any

In the lead up to the current recession, when the real estate market began to fall, there were so many investors shorting stocks and securitized mortgage packages that were already falling, that the market simply fell further. There were no buyers at the bottom, and the professional investors made millions off of the losses of others. Beyond this, there was no real federal regulation for securitized mortgages, since there was no real way to gauge the mathematical risk of any given package. This allowed the investors to take advantage of the system and to short loans on real people’s homes. Once these securities were worthless, many of the homebuyer’s defaulted on their mortgages and were left penniless. No matter from which angle this crisis is looked at, the blame rests squarely with the managers who began the entire cycle, the ones who pursued the securitization of mortgages. Their incompetence not only led to the losses of Americans who have never invested in the stock market, but to losses for their shareholders.

Prior to the 2008 economic depression, obtaining a mortgage was relatively simple for home buyers. However, many of those mortgages had provisions that made it difficult for borrowers to repay their mortgages (“Dodd-Frank,” n.d.). As a result, many homeowners lost their homes when they were unable to repay their mortgages, which led to the real estate crisis. In 2010 the Mortgage Reform and Anti-Predatory Lending Act, also known as the Dodd-Frank Act, was enacted to reform how mortgage servicers vetted borrowers and to eliminate the use of predatory loan practices (Cheeseman, 2013, p. 485). Under the Dodd-Frank Act, creditors must establish borrower’s credit history, income and expected income, debt-to-income ratio, and other factors before

After the bursting of the United States housing bubble, many homeowners found themselves in a dire situation. Following the dot-com bubble burst, the Federal Reserve slashed interest rates, meaning credit was cheap. Lower lending standards also meant that consumers with not-so-great credit were suddenly able to attain adjustable rate mortgages with a minimum of money down and easy initial terms. In 2004, approaching the pinnacle of the housing market’s climb, former Federal Reserve Chairman, Alan Greenspan, actually encouraged Americans to take out adjustable rate mortgages. Then, as 2006 came, Americans saw the housing market reach its peak and subsequently plummet downward. As a result, it became difficult to impossible forthe borrowers

Everyone has heard the news on the current deteriorating state of the economy, the severe credit crisis and the declining housing market. Fox, CNN, MSNBC, other news outlets and even the President remind us of our pain daily. The people's fears and perception have now become reality. Home foreclosures are at an all time high even in my neighborhood in Jersey City with many more foreclosures likely to come. The unemployment rate in Hudson County, New Jersey is growing daily and is the highest it has been in many years. Housing resale values are at all time lows with no end in sight. Even the banks are going bankrupt as are many Americans who no longer qualify for credit.Because of the recent credit crisis, many people don't qualify for a new loan to buy a house right now, despite the incredibly low housing prices.

Pre crash debt/income ratios were used incorrectly as lenders tried to qualify as many buyers as possible and these under qualified buyers negatively affected the market. These lenders used the following two ratios to decide if someone was eligible for a loan. An example of this is a buyer makes $60,000 a year, ($5000/month). The PITI (principal, interest, property taxes, insurance) rate of 32% was used giving, $1600 as an amount available for a mortgage. Then the bank also used a backend (total estimated amount of debt after purchasing a home) (Powel) ratio of 38% giving a total debt load of $1900 a month for a potential buyer (Hymer). This put buyers into a mode where they would try and make it look like they had very little debt at the moment they closed on the house. This was not always true or in the best interest of the buyer. Buyers were convinced that putting twenty percent down to avoid PMI (private mortgage insurance) meant taking big losses if the house they now owned decreased in value. My personal housing example is as follows. I sold my first house in 2001 making a $35,000 profit from the sale and improving market. I then purchase a $206,000 home putting all of the $35,000 and some savings to make a $41,000 down payment and avoid paying PMI. 5 years later I was in a home that was too big for me that I wanted to sell. My home eventually sold for $165,000 and I lost the $35,000 in cash that I had put in to the home along with all accrued equity. Foreclosure wasn’t the answer, before the market crashed, for many homeowners and still isn’t today. Even though banks and lenders are looking at foreclosure and bankruptcy less negatively the amount of time it takes a family to rebound from any financial shortfall can have catastrophic affects on their long-term financial

In the early-2000s, Moody’s, one of the leading credit rating agencies in the world, evaluated thousands of bonds backed by so-called “subprime” residential mortgages—home loans made to those with both low incomes and poor credit scores. When housing prices began to fall in 2006, the value of these bonds disintegrated, and Moody’s was compelled to downgrade them significantly. In late 2008, several commercial banks, investment banks, and mortgage lenders that had been

During the great recession of ‘07-’09, the subprime mortgage crisis claimed the homes of 4.8 million individuals who lost their residence to foreclosure while an additional 2.2 million borrowers surrendered to short sale. These victims suffered substantial blows to their credit, with foreclosures and short sales costing them anywhere from 85-160 credit points, according to Jon Maddux, president of Drop Mortgage, Inc. It took years for people to rebuild their lives and finances, but real estate agents, mortgage brokers, and homebuilders are noticing some rather surprising trends. With the country’s economic recovery slowly yet steadily underway, many former victims of foreclosure—repelled by a rise in rental rates and enticed by affordable home prices—have found themselves back in the market. They have come to be known as “boomerang buyers.”

The problem was everyone who qualified for a mortgage already had one. Lenders knew if they sold a mortgage to a person that defaults the lender gets the house, and houses were always increasing in value in that market, that would be a valuable asset to sell. To keep up with the demand from investors, lenders started selling mortgages to borrowers who wouldn’t have qualified before because of the risk for default. These mortgages are called sub-prime mortgages and lenders started creating tons of them. In the unregulated market, lenders employed predatory tactics to get more borrowers with attractive offers such as no money down, no credit history required, even no proof of income. People never would have qualified before were now buying large houses, and the lenders sold their mortgages to Investment bankers. The investors packed subprime mortgages in with prime mortgages so credit agencies would still give a AAA rating. The rating Agencies who had a conflict of interest by receiving payments from the investment banks, had no liability if their credit ratings were correct or not. They turned a blind eye to the risky CDOs and kept giving AAA ratings. This worked for a while and everyone was happy including the new homeowners. The housing market became hyper inflated with more homeowners than ever. Wall Street continued to sell their CDO’s which were ticking time bombs. The subprime mortgages began

By encouraging borrowing, many banks leveraged themselves so greatly that they were willing to lend that money and issue mortgage contracts to virtually any individual. These mortgages were marketed as once-in-a-lifetime opportunity, where the mortgage required little or no documentation. The amount of money banks were borrowing from the government promoted the belief that this was essentially “free money” and the public followed blindly. People across the United States were borrowing money and taking out mortgages on houses; however, they had little or even no physical means to pay the banks back. To the individual, taking advantage of these low rates meant one thing to them: finally owning a home in a market where the price of homes will only go up and will never decline. What the individual did not know was the mortgage industry was unregulated and the mortgages they used to

With all of the incentives and mortgage products given so easily to people that couldn’t afford the high prices (including interest rates), many people defaulted on their first mortgages because they were no longer were able to receive the profit from the homes they first intended to flip. “During the first quarter of 2008, nearly 9% of all mortgage holders were delinquent or in foreclosure, the highest rate since recordkeeping began in 1979. Foreclosure filings more than

Establish Credibility: According to US News, the great American dream of owning a home appears poised for a comeback. Real estate company Trulia reports that in many parts of the country, rents are rising while housing prices are falling, making buying a home more affordable. Trulia found that in 98 out of 100 major metropolitan areas, including Detroit, Atlanta, and Cleveland, buying has become more affordable than renting.” I think the mortgage catastrophe of 2001 left prospective home buyers afraid of buying a house without being extremely certain that is the right decision.

December 2007-June 2009 was one of the worst economic recessions our country faced since the Great Depression. One of the major factors the led to this recession was the implementation of subprime mortgage lending. Mortgage lenders offered loans to borrowers with unfavorable credit; payment delinquencies charge offs/judgements/bankruptcies, high DTI and were considered a higher credit risk (ComE-IN Background Definitions, 2015). Subprime loans steadily increased from 8% to about 20% in 2006 (Simkovic, 2011) Over 90% of these loans in 2006 were adjustable rate