The Economic Crash Of The United States And Iceland

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.

The 2008 financial crisis had multiple causes but the most outstanding to me is the passing of the Gramm–Leach–Bliley Act. This act repealed Glass – Steagall which removed the safeguards that came between commercial and investment banks. It destroyed regulation between the two and gave unprecedented “innovation” which allowed millions of Americans to purchase homes they couldn’t really afford. This created the American housing bubble that eventually popped do to citizens being unable to pay for their new homes. The intial burst of the housing bubble resulted in the foreclosure of 860,000 homes in 2008. Another entity at fault for the recession would be the credit rating companies. They provided the means to the consumers to take out mortgages

During the 2008 Great Recession, the financial crisis happened because banks were able to create too much money, way too quickly, and they used it to push up house prices and speculate on financial markets. This was the biggest financial crisis since the Great Depression in the 1930s. The bank was giving out money to the people who couldn't pay it back. There were a lot of subprime loans to those people with poor credit history. Subprime mortgages were often sold to families who didn't even qualify for ordinary home loans. They would sell them to the people who couldn't even get loans and then turn around and sell them to the banks. The banks said that "anyone qualifies for loans". These banks often created a lot of fake inflation.

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,

Before the pre-2008 economic recession era, people were ignorant of what was bound to happen. Life was a party. Incomes were steadily rising: most people in every financial class had a credit card, a family to support, and an opportunity to do so by moving into the biggest house they could find. Mortgage loans were given out to anybody with a heartbeat and credit rating, this is called a subprime mortgage. If somebody wanted a new home they could get it, no matter if they could afford it or not. However, when interest rates started to rise people were not able to pay their mortgages and their homes were foreclosed upon. Homeowners who were not careful — or just plain unlucky — when choosing what mortgage was suitable for their income were either left homeless or stuck living paycheck to paycheck. The capitalism party was over. Everyone stopped buying what they once thought they could afford just so they could maintain proper housing, in turn a recession began. So was the 2008 financial crisis caused by the homeowners? Homeowners in the United States — for the most part — are not gluttons for bigger and better homes they can not afford, it was a case of misinformation perpetrated by investment banks and mortgage lenders in the pursuit of more money. When higher interest rates began to kick in misinformed homeowners could not pay their steep mortgages anymore, resulting in multitudes of mortgage defaults. Mortgage defaults and the housing bubble did play a significant role in

In 2008, many mortgage dealers issued mortgages with terms that were not in favor of the borrowers. Some of these dealers offered low interest rates but soon doubled and skyrocketed into higher rates in later years. The loaners would then sell these loans to banks such as the Fannie Mae or Freddie Mac. When the housing bubble burst though, many mortgage holders defaulted their loans and led to an economic crisis. Homeowners had a past due payment and couldn’t pay their payments. Many people who owned homes at this time had no backup plans, meaning they had to drop everything, losing thousands of economic growth. This was known as a crisis in confidence, when giant companies to individual investors don’t trust one another.

The U.S. subprime mortgage crisis was a set of events and conditions that led to the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages. After U.S. housing sales prices peaked in mid-2006 and began their steep decline, refinancing became more difficult. As adjustable-rate mortgages began to reset at higher interest rates, mortgage delinquencies soared. Securities backed with mortgages, including subprime mortgages, widely held by financial firms, lost most of their value. Global investors also drastically reduced purchases of mortgage-backed debt and other securities as part of a decline in the capacity and willingness of the private financial system to support lending. Concerns about the soundness of U.S. credit and financial markets led to tightening credit around the world and slowing economic growth in the U.S. and Europe.

First, the subprime mortgage was a major reason for the financial meltdown. Initially, subprime mortgages were designed to assist borrowers with a low credit score and fall into the low-income bracket. However, lenders starting utilizing this loan type for all borrowers regardless of economic status. The ethical issue observed was a lack of trustworthiness. Lenders did not disclose all of the risk involved with this loan type. They only promoted the benefits of profits and lower monthly payments. The slow down of the housing market quickly identified the pitfalls of

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.

The cause of the 2008 financial meltdown was caused by many different things that created the “perfect storm”. Some of these factors include Wall Street greed, individual greed, Barney Frank and home-ownership “promoters”, mortgage brokers, subprime loans, Alan Greenspan and The Fed, credit default swaps, greedy investors, speculators, unethical or incompetent rating agencies, Republicans, Democrats, Congress, and Presidents (Terry 2013). There were numerous things that caused the meltdown and we may not even know all the factors. What we do know is that it happened and it happened fast.

But on the other hand, we need to ask the question, how did the subprime mortgage happen? It is important to understand how the economy has been impacted by this foreclosure crisis. Also, it will be dispensable to look at what has really prompted the housing collapse. The immediate cause or trigger of the crisis was the bursting of the United States housing bubble that peaked between 2005 and 2006, (Almendarez, 2009) This can be

To properly understand how and why the subprime mortgage crisis happened you have to go back a couple of years. In the past, lenders would deny mortgage request to potential homebuyers with a below credit average history, looked for high payment loans, or paid small down payments. Families listed as High-risk could get small mortgages backed by the Federal housing administration and those with limited credit options had to rent. In this era, there were low mortgage foreclosure rates, and house prices and home construction correlated with income and mortgage interest rates.

A subprime loan is a loan given to people who generally have bad to below average credit and are charged with higher interest rates because of past credit history. Subprime mortgages was designed to help those Americans who want to achieve the goal of homeownership for low-income minorities (Gorton 12). The unethical dilemma is that the lender has the choice to decide whether to refinance or not at the end of the first period without the borrower

A sub-prime mortgage thus can be understood as a mortgage which is offered to borrowers with low credit ratings or some other characteristic that increases the risk they will default, or fail to make their monthly loan payments. This is because a sub-prime mortgage can offer a consumer a way to purchase a home while they repair or build their credit history. Because subprime mortgages carry substantially higher interest rates than similar mortgages available in the prime mortgage market, a subprime mortgage borrower has a great deal of incentive to repair or establish his or her credit to be able to refinance the subprime mortgage into a prime mortgage. Most sub-prime loans start with a low ‘teaser’ rate charged for the first one to three years. After completion of three years, the rate is reset by adding a set number of percentage points to a base rate, such as market driven rates on certain bonds. Starting in 2005, resets caused monthly payments for many sub-prime borrowers to increase by 50% or more, leading to a rising rate of delinquent payments and home foreclosures.

What is a subprime loan? Subprime loans are unconventional loans designed to put as many people as possible in a home or to refinance an existing home regardless of the borrowers’ credit history. A subprime loan allows lenders to make loans whether or not the borrower has poor credit, no credit or even a very low Fair Isaac Corporation (FICO) score. Basically, subprime loans are creative ways to convenience someone that they can afford more than they should.