Housing Market Crisis

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Economic Thought Alex TodorokiHOUSING MARKET EPIC FAIL 2008 Credit crises - Global cluster F&^# involving: Sub prime mortgages, collateralized debt obligations, frozen credit markets, credit default swaps. Focus point - Housing Market Who is affected – Everyone Housing credit crises two parties – homeowners and investors. Homeowners are of course tied to mortgages (getting screwed), and investors are tied to... Well, ruining everything! Capital gain includes: Pension funds, Insurance companies, Mutual funds and Sovereign funds, ect. These two parties are brought together by the financial system – aka Wall Street Lets have a little background - The history is fairly prevalent to understand because it kind of sets the…show more content…
If the loan is made, the borrower sends the required scheduled payments to the servicer, which then remits the payments to the mortgage holder. The characteristics of the borrower and of the mortgage determine the classification of the loan.” (An Overview of the Housing Finance System in the United States Congressional Research Service) Moving on to the next process the secondary market. The secondary market is the market for buying and selling mortgages. “Lenders might choose to keep the mortgages that they originate in their own portfolios, or they might sell them to the secondary market. If a mortgage originator sells the mortgage in the secondary mortgage, the purchaser of the mortgage could choose to hold the mortgage itself or to securitize it in a pool of mortgages. Fannie Mae and Freddie Mac securitize mortgages that conform to their criteria. Ginnie Mae guarantees MBS made up exclusively of mortgages insured or guaranteed by the federal government. Other financial institutions issue PLS that do not have an implicit or explicit government guarantee. Depending on the type of MBS or mortgage purchased, investors will face different types of risks, including credit risk and prepayment risk.” (An Overview of the Housing Finance System in the United States Congressional Research Service) A bunch of mumbo jumbo financial gibberish! So what does this even mean?? How it works- Okay so lets say a family wants a house
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