How Wall St. Greed Caused The Mortgage Foreclosure Crisis

The bursting of the housing bubble, known more colloquially as the 2008 mortgage crisis, was preceded by a series of ill-fated circumstances that culminated in what has been considered to be the worst financial downfall since the Great Depression. After experiencing a near-unprecedented increase in housing prices from January 2002 until mid-2006, a phenomenon that was steadily fed by unregulated mortgage practices, the market steadily declined and the prior housing boom subsided as well. When housing prices dropped to about 25 percent below the peak level achieved in 2006 toward the close of 2008, liquidity and capital disappeared from the market.

I often used to watch a show called “Extreme Makeover” where a team of builders would come to a neighborhood, build a need worthy family a beautiful new home, and then just give it to them. “Wow! What a lucky family,” I would say. “How fortunate.” However, as time went by, that same family would be in the news again. Why? The house was in foreclosure. The people had gone to the bank and taken out a mortgage against the home, then spent all the money they got for it on other things.

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

Recent figures show nearly 3 percent of all U.S. home mortgages are now in foreclosure, and experts are saying that number will rise for at least another year. The foreclosures add to the growing pool of unsold homes in a market that has been deteriorating for the past two years. This is driving down prices of all homes, most of those whose owners have never missed a payment. That’s why it is in everyone’s interest to stop this wave of foreclosures and get the unsold inventory off the market as quickly as possible. Unfortunately, the power to solve this crisis is in the hands of very people who caused much of the problem in the first place: bankers and the federal government. Pressured by federal bureaucrats after passage of the

“The Obama administrations original plan was to persuade the lending industry to hand out $50 billion in subsidies.”(Fleisher) But so far the amount of homes being foreclosed has continued to rise. “Foreclosure filings rose more than 33 percent in June compared with the same month last year and were up to nearly 5 percent from May, RealtyTrac said.”(Fleisher) The amount of foreclosures in a given area also affects the value of homes surrounding the foreclosed homes. Areas where foreclosures have increased have shown that real estate value decreases. For example, Greeley, Colorado, the city and state that I live in has experienced this phenomenon. It’s happened to my parents personally. Foreclosures around our house have increased and now our house is valued less than what the mortgage is worth. It’s discouraging to think about and it puts homeowners in an interesting situation because they have to pay more for a house that isn’t worth as much. This isn’t how it should be. The government should regulate banks in order to adapt to situations like these. The government should persuade banks to adapt mortgages to the changing real estate home values. Even if it’s just until homeowners can get back on track. The foreclosure issue can also be tied to the fact that unemployment has risen significantly in the past months. “While the current unemployment rate—9.5% in June—is not at an historical high, it

If there is one thing we have learned in the last decade, it’s that almost no one is immune from financial struggles. When the struggle is too much, sometimes it forces us to take drastic measures to survive and move forward in the wake of those struggles. When financial crisis hits we downsize, cutback, and in extreme cases walk away. We are not too far removed from “mortgage meltdown” that began in 2007. Since that time we have seen a significant increase in the amount of foreclosures, short sales, deed in lieu, cash for keys, and bankruptcies.

During the mortgage meltdown of the 2000s, I lived in an area of Metro Detroit know for their financial instability. Our local high school was millions of dollars in debt, and it was not unlikely to see many houses in my neighborhood go into foreclosure throughout the year. It was truly an epidemic that was taking hold of every family in the community, no matter the strength of their financial background. I also saw how models like this could be found across the entire country, and how it was becoming a destructive environment to be a part of. This environment was unsettling to me as a child, and was the fundamental reason that I have consciously formed structured financial habits as I ease into adult life. I refused to assimilate to a culture that showed debt, such as student loans or mortgages, as the only way to live in society. In this, I am driven to graduate college debt-free; this task will be far from easy, but with determination and consistency, I will succeed. I know that what the nation needs to pull itself into celebrated economic security is through embedded financial literacy and complete cultural transformation.

There are a lot of industry experts that have believe that the root of the foreclosure crisis is the mortgage-backed security. Other experts believe that the cause is an abusive mortgage and banking industry taking advantage of Americans. I’m going to offer a possibly unpopular response, as I believe that the root of the crisis is lack of personal responsibility, integrity and, to a lesser extent, knowledge.

Foreclosure is one of the most difficult things to face. A home is usually the single largest investment for the average consumer and to lose that is very devastating and hard to recover from. Today, I work for one of the largest foreclosure homebuyers in Florida. They buy about 500 homes per year only from the foreclosure auction. This company has been investing since before the crash and they have shared their knowledge and experience with me over the past two years so that I don’t make the same mistakes they did. Some of the most important lessons they learned from the crash are as follows: Don’t invest outside of what you know just because everyone else is doing it; don’t over-leverage your properties by taking out multiple mortgages

In the history of our countries development we’re shown that the greatest successors in the money making big businesses had come from the industrialization era. The only way to secure the top, we have come to see by history, is in your ability to push and press. Several years ago, the real estate and mortgage meltdown had a crushing impact on the United States economy that also negatively affected countless families nationwide. Today, the situation has significantly improved, with ‘boomerang buyers recovering and getting back into the market. Looking back, what lessons did we learn from the collapse, what is/are the silver lining(s) and how are real estate buyers today benefiting from those past mistakes? What’s another plan, if it’s not inevitable, that secures the national economy with homes? Social Darwinism is the answer.

Numerous defaults, slump in the value of houses and mortgage finance securities, and shortage of liquidity in banks characterized the real estate and mortgage meltdown in the United States. The relative ease of credit, complexity of loans, and exuberance by people to procure loans fuelled the meltdown (Paul 2010). Sun, Stewart, and Pollard (2010) observe that policymakers, financial manipulators, and market speculators contributed to the meltdown. Competing needs among stakeholders also aggravated the meltdown. Mortgage finance firms, United States government, market investors, homebuyers, and shareholders also contributed towards the worsened meltdown (Sun, Stewart, & Pollard 2010.) The meltdown had disastrous economic and social consequences. Banking and non-banking financial institutions closed down while individual homeowners lost their houses via foreclosure. The fall in house prices resulted in investors incurring substantial losses. Banks closed due to liquidity challenges associated with default from loan borrowers. Closure of mortgage and financial institutions also led to massive unemployment. The meltdown had vital lessons, attributes, and roles to the real estate and mortgage participants.

Mortgage securities are crucial when it comes to the availability and cost of housing in the United States. This paper will analyze the mortgage securities market, and how the market functions. It will also focus on the subprime mortgages created from 2000 to 2006. Suggestions will be presented that would protect against the types of problems experienced in the mortgage securities market from 2006 through 2009.

This book also makes people aware of what kind of people work on Wall Street and why they could let something like this happen. Greed was one of the big motives because everyone was making money during this time. Everyone though home prices would keep rising so brokers and banks wanted more and more people to own homes. The problem was that people who could afford a home already had one and to make more loans banks had to lower their standards. A common acronym is “NINJA” which stands for no income, no jobs or assets, no problem. Banks would entice these types of borrowers with adjustable rate mortgages to book the sale. Then the banks would turn around and sell these mortgages so it was someone else’s problem. Eventually when the borrower

The argument over who should be at fault for the subprime mortgage crisis and housing market collapse in the United States has been a heated debate. Even though home foreclosure keeps rising, there should be some accountability for the economic meltdown resulting from the subprime mortgage situation. Should we blame banking institutions, mortgage lenders, brokers, and investors for this crisis? Should minorities be blamed for recklessly accepting loans and defaulting on them after realizing they could not meet their obligation? Should we blame the government for their inactions for not protecting victims of predatory lending?

Financial and economic experts still disagree over the specifics of what caused the recession of 2008. The fraudulent activities which resulted from the subprime mortgage crisis were simply the combination of the perfect economic storm of opportunity meeting the ability for mortgage bankers, corrupt politicians, Wall Street investors, and anyone else feeding from the real estate trough to recognize and capitalize on the presented opportunity. Between the winter of 2007 and the summer of 2009, there was a national banking crisis which fed directly into the United States recession and was initiated by a significant disintegration in housing prices directly after the housing bubble collapsed. The collapse of the bubble led to a decrease in investment interests in residential property and to a higher mortgage rate delinquencies, loan defaults, and foreclosures across the country.