The Crisis Of The Housing Boom

1156 Words5 Pages
This was a big problem because the housing boom became an economic bubble. An Economic bubble is when a demand gets very high is the price inflates to the point where it is not sustainable and tends to burst as it gets too big. This is exactly what had happened. People wanted to buy expensive houses that they couldn’t afford. The money came from other countries so that getting good credit was easy and with that credit, they took out loans to buy the houses. This is called Sub-prime Mortgages. There are three types of mortgages. A Prime mortgage, which is issued to a person who has a solid credit history and a high likelihood of repayment, A Alternative A-Paper mortgage, which is a mortgage issued to a person with good credit, but without…show more content…
For these families who were first time home buyers, these details are very easy to miss. People were arrogant and thought that no matter their income or their ability to make a down payment, they could own a house. For the mortgage lenders, they wanted money and so they would often sell these mortgages to a bank or to Fannie Mae or Freddie Mac, which were institutions created to buy mortgages and provide lenders with more money to lend. The great part about this is if the housing prices keep rising, everyone profited. Unfortunately that did not last long. When the economic bubble of the housing boom burst. One by one, the mortgage holders defaulted on their loans. This caused 76% of home loans to be in the process of foreclosing in just a year. Another 7% had their payments one month past due. This is what cause the housing market threat. With all of this happening, Lehman Brothers needed help. They asked many potential trade buyers include Bank of America and Nomura, plus a number of private equity houses that have expressed an interest in buying the bank, but in all the desperation to find a savior, people started to ask questions and that made the value of their stocks plummeted. Lehman brothers were in deep trouble. They assumed that the U.S Government would bail them out was because of TARP. TARP stands for Troubled asset relief program, which was a group of programs created by the U.S. Treasury to preserve the country’s
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