Solving The Subprime Mortgage Crisis

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 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.

Subprime mortgage lending is the origination of residential mortgage loans to customers with impaired credit histories. Typically, these borrowers have lower credit scores and/or other credit deficiencies that prevent them from qualifying for prime mortgages. Subprime borrowers pay premium above the prime market rate in order to compensate the lender for bearing greater default risk. In addition, subprime borrowers pay higher origination and continuous costs, such as applications fees, appraisal fees, mortgage insurance payments, late fees and fines for delinquent payments.

Subprime lending became prevalent in the early 2000’s when property values were sky-rocketing and many Americans thought they would fulfill their home ownership dreams, by obtaining loans they may not otherwise qualify for. A subprime loan is a loan offered to an individual who does not qualify for a loan at the prime rate due to their credit history. Subprime loans have higher interest rates because of the risk that the lender is taking. During the early 2000’s the housing market was great for homebuyers, since interest rates where low and property values

The foreclosure crisis has hit America exceptionally hard these past few years especially in California where the housing market is at its worst. California is also the worst because it is home to a lot of the most expensive properties. People are walking away from their homes because they cannot afford the mortgages or loans that they took out on their homes. The lenders are also to blame for this because they did not thoroughly look at them borrower’s credit and income to ensure that they would be able to pay it back. In some cases they would lend money even if the borrower had terrible credit. This has caused corporations like, Country Wide Home Loans, to be bought by other companies. A rather simple solution to this would be to

Many Americans have and still have been haunted by their pasts. Most of us have learned not to judge others by backgrounds or past choices, but when it comes to financial credit, our pasts are not so easily overlooked. With the slow but sure recovery of the foreclosure crisis that devastated the nation years ago, hangs a hand of hope that offers a second chance to “boomerang buyers” who merely just want to get back into home ownership. The “rent-to-own” option is the best choice for these buyers who want a second shot to do it all over.

“Foreclosure filings were reported on 336,173 U.S. properties in June, the fourth straight monthly total exceeding 300,000…”

The current foreclosure crisis is affecting everyone in this nation. If people are not experiencing the crisis firsthand, they hear about it through family, friends, and their other social networks. Nonetheless, it is impossible to escape because the media is constantly showing coverage about it. People are becoming more aware and seeing how expansive the impact is through television, internet, print, and radio. Americans are quickly realizing the impact the foreclosure crisis is having on the economy and the morale of this country. No one knows who to blame for this crisis, is it the government or the lenders or the borrowers? Therefore, I think the government has to be careful with any decision it makes to try and find a solution

There is no doubt that subprime lending was a major cause of the Recession. It was a tactic used by investment banks in order to get more money from unsuspecting homeowners. However, lenders found out that most of the people who were qualified to have a mortgage already had one. In turn, the lenders had to lower their credit criteria for people to take out a loan on a house. This is how the term subprime lending came to be in the financial world. As a result of subprime lending, the investors were able to make millions off of these mortgages. People who qualified for a subprime mortgage usually had a credit score below that of 620. To make the subprime mortgage deal more customer friendly, the lending banks decided to have the people who qualified for these mortgages didn’t have to have a down payment. Normally, the down payment would be as much as 20%, but this made it easier for people to get mortgages without having to worry about how much money they needed at the beginning of their purchase. “ Many American homeowners bought houses they could not afford,

“I’d like to suggest that 2010 be the year that banks no longer have the right to foreclose on people’s homes.” Stanley Bing, FORTUNE magazine, While You Were Out / Fourth Quarter Yearnings. Many Americans and I agree with Mr. Bing’s general feeling of the need to aide American families in holding on to their homes. However, this may be easier said than done. We cannot strip banks from the right of foreclosing on properties because then nobody would ever pay their mortgage. Banks would take overwhelming losses and more chaos would be created in the American and global economies.

Some measures that have already been taken in the foreclosure dilemma include a tax credit for first time buyers. This tax credit creates an incentive for younger people to purchase properties. In order to help this crisis, incentives need to be created to allow people to purchase and maintain payments on their property. Lenders also need to be given an incentive to take a loss and sell some properties. Creating incentives will allow the housing market to recover.

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.

These brokers have neither the credit skills nor the interest to conduct proper payment due of potential homebuyers. Their interest is only in selling the houses as fast as they can. The MBS instruments allowed all financial institutions to transfer the risks to other investors. The dissociation of ownership of assets from risks encouraged poor credit assessment and was fundamental increasing the risks.

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

This crisis was better known as subprime mortgage crisis due to the household credit financed by financial institutions, especially