Real Estate And Mortgage Meltdown Analysis

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 house market during the Great Recession had led to many people losing their homes. Americans faced a financial disaster when they say there home values had as dropped even below the amount they had borrowed and subprime interest rates had spiked. The monthly mortgage payments almost doubled in some parts of the country.  Household net worth had dropped by 18 percent more than $10 trillion causing the largest loss of wealth in the fifty

The housing crisis of 2008 can trace its origins back to the stock market trends of the mid- to late 90 's. During a period of extended growth in the stock market, increased individual wealth among investors led to generalized increases in spending, including in the housing market. With more disposable income in the pockets of consumers, the demand for housing increased in the late 90 's. Due to the fact that homes are large projects and their construction takes a large amount of time, the supply of homes in the market is inelastic on the short term. Because of the fixed supply of homes, as per the law of supply, which

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.

After the optimistic forecast from the realstate that the houses value were going to increase, many institutions started to make adjustments to take profit from this trend. In some cases, prime mortgages were allowed for subprime borrowers to take. This might look like a great idea to financial institutions because the house values were rising: if a people (who in the first place couldn’t afford a house) stop paying their mortgages then the bank could sell the house for a value greater than the one at the moment of default. Everything was going well, so how is it that the crisis unfolded? Well, these institutions wanted to make more profit

Simply put, it all commenced within the United States housing market. In the years leading up to 2008, buying and selling mortgages became a very popular way for lenders to make money. While housing prices continued to increase, lenders found themselves in a win-win situation. If homeowners paid their mortgages, the lenders made money. If homeowners could not pay their mortgages, they would

Real estate values further rose, luring lenders into taking more risks in their financial transactions. All this was done in the hope of raking in huge sums of dollars since the prices of the mortgages had gone up. Consequently, a large number of people, including those who would not have qualified under normal conditions, were able to secure mortgages. They soon realized that they had blundered but it was too late. Due to increased supply of homes being disposed off by lenders and other financial institutions, the demand went down sharply. There was no more money flowing in the economy as many people now stopped taking the mortgages. This could have resulted into the mortgage crisis.

During this time period, homeownership typically required a 20 percent down payment (Melicher & Norton, 2014, 168). Lending institutions were very careful about whom they lent money to, and credit standards were high (Melicher & Norton, 2014, 168). Melicher & Norton (2014) called this the “save now, spend later” philosophy, and it would change in the coming years (p. 168).

The financial crisis emerged because of an excessive deregulation of business operation of financial institutions and of abusing the securitization mechanism in the absence of clearly defined rules to regulate this area in the American mortgage market (Krstić, Jemović, & Radojičić, 2013). Deregulation gives larger banks the opportunity to loosen underwriting lender guidelines and generate increase opportunity for homeownership (Kroszner & Strahan, 2013). After deregulation, banks utilized many versions of mortgage loans. Mortgage loans such as subprime and Alternative-A paper loans became available for borrowers challenged to find mortgage lenders before deregulation (Elbarouki, 2016; Palmer, 2015). The housing market has been severely affected by fluctuating interest rates and the requirement of large down payment (Follain, & Giertz, 2013). The subprime lending crisis has taken a toll on the nation’s economy since 2007. Individuals who lacked sufficient credit ratings or down payments resorted to subprime mortgages to finance their homes Defaults on subprime and other mortgages precipitated the foreclosure crisis, which contributed to the recent recession and national financial crisis (Odetunde, 2015). Subprime mortgages were appropriate for borrowers with substandard credit and Alternate-A paper loans were

The housing market had started to decline in 2007, after reaching peak prices in 2006. There was an extremely high amount of subprime mortgages that had been issued in the early 2000’s. Homeowners could no longer afford to live in their homes, payments started going to default, and foreclosures started to rise. According to The Washington Post, there were five contributing factors to the housing market crash: low-doc loans, adjustable- rate mortgages, equity line of credit, more money down than needed, and mortgage insurance.

A few years later the market took a turn for the worse, where interest rates were on the rise, and homes were losing their value quickly. Now borrowers that were in these interest only ARM’s needed to refinance these loans because the rates were going up, to a point where the homeowner was not be able to afford the payment. The Federal Reserve tried to stimulate the economy by lowering interest rates during the recession in early 2001, from over 6% in 2000, to a rate just above 1.25% in 2002. These low rates encouraged many Americans to apply for loans for homes that a few years ago they would have not been able to. To encourage the homeownership boom, the Bush administration urged Fannie Mae and Freddie Mac to allot more money for low-income borrowers so they could buy their own homes. This resulted in the subprime mortgage

During 2007 through 2010 there existed what we commonly refer to as the subprime mortgage crisis. Through deduction of readings by those considered esteemed in the realm of finance - such as Ben Bernanke - the crisis arose out of an earlier expansion of mortgage credit. This included extending mortgages to borrowers who previously would have had difficulty getting mortgages; this both contributed to and was facilitated by rapidly rising home prices. Pre-subprime mortgages, those looking to buy homes found it difficult to obtain mortgages if they had below average credit histories, provided small down payments or sought high-payment loans without the collateral, income, and/or credit history to match with their mortgage request. Indeed some high-risk families could obtain small-sized mortgages backed by the Federal Housing Administration (FHA), otherwise, those facing limited credit options, rented. Because of these processes, home ownership fluctuated around 65 percent, mortgage foreclosure rates were low, and home construction and house prices mainly reflected swings in mortgage interest rates and income.

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

The housing market crash, which broke out in the United States in 2007, was caused by high risk subprime mortgages. The subprime mortgage crisis resulted in a sudden reduction in money and credit availability from banks and other lending institutions, which was referred to as a “credit crunch.” The “credit crunch” and its effect spread across the United States and further on to other countries across the world. The “credit crunch” caused a collapse in the housing markets, stock markets and major financial institutions across the globe.

One of the first indications of the late 2000 financial crisis that led to downward spiral known as the “Recession” was the subprime mortgages; known as the “mortgage mess”. A few years earlier the substantial boom of the housing market led to the uprising of mortgage loans. Because interest rates were low, investors took advantage of the low rates to buy homes that they could in return ‘flip’ (reselling) and homeowners bought homes that they typically wouldn’t have been able to afford. High interest rates usually keep people from borrowing money because it limits the amount available to use for an investment. But the creation of the subprime mortgage