The Crisis Of The New Millennium

1418 Words6 Pages
In 2007, the United States experienced a crippling recession in the mortgage/real estate field. This crushed the American economy as countless individuals lost their homes due to foreclosure as banks and other various lending institutions were forced to freeze their practices to ensure their survival. While this seemed to happen virtually overnight, there were several factors that served as signs and eventual learning points, providing insight into the cause of the crash.
One of the contributing factors to the mortgage crisis of the new millennium is an old age issue that has affected our country for years but has gone largely unnoticed because at times because it has the ability to have a positive or negative affect, consumerism.
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In response to having an influx of these types of potentials borrowers who were not the most desirable candidates to lend to, the mortgage industry increased the practice of sub-prime lending, another cause of the mortgage crash. This is the concept of approving loans for individuals that are high risk or may have a greater chance of default on the loan. Some defining characteristics of these individuals include: low or bad credit score, low income, debt and no assets. To be fair this practice existed long before the mortgage crisis but was done in moderation and carefully monitored. But as the number of high risk applicants increased, the lending institutions allowed the practice of sub-prime lending to be practice regularly.
While facing pressure from the applicants to provide these loans, many lending institutions also faced pressure from within their own companies. Loan officers who are responsible for overseeing the loan process, began to direct the company underwriters to do whatever was necessary to make the loans successful. The underwriters responded by not accurately disclosing the risk of lending to these types of applicants and the loan closed successfully. This backfired when many homeowners validated their high risk status by being unable to make their loan payments as
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