The For The Housing Crisis And The Economic Collapse

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.

During the early 2000 's, the United States housing market experienced growth at an unprecedented rate, leading to historical highs in home ownership. This surge in home buying was the result of multiple illusory financial circumstances which reduced the apparent risk of both lending and receiving loans. However, in 2007, when the upward trend in home values could no longer continue and began to reverse itself, homeowners found themselves owing more than the value of their properties, a trend which lent itself to increased defaults and foreclosures, further reducing the value of homes in a vicious, self-perpetuating cycle. The 2008 crash of the near-$7-billion housing industry dragged down the entire U.S. economy, and by extension, the global economy, with it, therefore having a large part in triggering the global recession of 2008-2012.

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.

The financial collapse is a very complex issue rooted in multiple causes, making it hard to put into a single sentence. However at it’s core the reason for the collapse is that many investors and banks tried to get rich by taking on assumptions about the housing market and taking on huge risks that they didn’t realize the full extent of.

One of the factors that led to the mortgage crisis was the housing bubble. It started in 2001 and climaxed in 2005. A housing bubble is characterized by rapid increase in the value of real estate properties to an extent that

The real cause of the crisis was not in the housing market but in the misguided monetary policy of the Federal Reserve. While the economy started to downsize in 2008, the Federal Reserve concentrated on solving the housing crisis yet it was just a distraction from the entire thing. By its self, it might have caused a small downfall. As the Federal agency released the financial institutions at a risk from a number of bad mortgages, it disregarded the main cause of a serious crisis (FEDERAL RESERVE BANK of NEW YORK, 2017) A decrease in the Gross Domestic Product (GDP) which entails the total value of all commodities and services produced in the United States, was not adjusted for inflation. Such a decline began the unplanned crisis in mid-2008, and once it happened, the damage had already

For decades Americans couldn’t help but rejoice when they were able to own their very own home. The image of holding the keys and to quickly step foot into their home provided Americans with visons of prosperity. Many Americans whether poor, middle-class, or wealthy could now dream of endless possibilities when owning their very own home, as well as embracing a sense of accomplishment. These accomplishments or feelings were great at first; however, the realty for some Americans was that behind the glitz and glamor was a ticking time bomb. Now imagine the United States of America flourishing in the real estate sector and the US economy from Wall Street to individuals benefiting from the booming housing market. However, while all this was

June 13, 2007 is the day that Richard C. Cook claims in his article, “It’s Official: The Crash of the U.S. Economy Has Begun.” In the past couple of years, months, and weeks, the United States economy and stock market showed significant failures and inefficiencies to the world. Perhaps the greatest evidence signaling the recent economic meltdown is the subprime mortgage problems that started a little over a year ago. The burst of the U.S. housing market bubble was caused by a combination of risky lending and borrowing practices and higher interest rates coupled with dropping housing prices, making refinancing more difficult. To deepen the drama, Wall Street’s excessive debt and unsustainable

The fall of the housing market that begins the recession in 2008 was in large part due to the fact that people wanted large and expensive homes. These were homes that they could not afford. Real-estate agents and their loan officers help manipulate the numbers for these unfortunate individual to get bank loans from banks who would later foreclose on these homes. As the job market begin to decline and massive layoffs resulted all across the country. Many individuals became delinquent on more than one or more house payments after losing their employment. Mortgage companies Lenders Country wide and Fannie Mac and others found themselves holding a massive amount of risky home loans that could have ultimately collapsed the world banking system.

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

A enormous problem on account of the housing boom became an economic bubble. An Economic bubble is when a demand gets extremely high, then, the price of the product or service inflates to the point where it is not sustainable and tends to burst as it gets too immense. People wanted to buy expensive houses that they couldn’t afford. The money came from other countries so that getting good credit was accessible 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, however did not have full documentation of income. Lastly, the one that the Lehman brothers applied was The Subprime mortgage, which is a mortgage issued to a borrower without a solid credit history or with bad credit and also who lacks full documentation of income.

The mortgage meltdown happened when lenders began to accept people who were not normally qualified for them. The lenders offered the risky borrowers insanely low interest rates for property. In the begging the interest would be low and throughout the time they spiked really high so that the people involved

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 2008 financial crisis can be traced back to two factor, sub-prime mortgages and debt. Traditionally, it was considered difficult to get a mortgage if you had bad credit or did not have a steady form of income. Lenders did not want to take the risk that you might default on the loan. In the 2000s, investors in the U.S. and abroad looking for a low risk, high return investment started putting their money at the U.S. housing market. The thinking behind this was they could get a better return from the interest rates home owners paid on mortgages, than they could by investing in things like treasury bonds, which were paying extremely low interest. The global investors did not want to buy just individual mortgages. Instead, they bought

Due to such events as the subprime mortgage crisis, the auto market and Wall Street’s failure, the United States suffered a severe economic blow. Looking at the situation from an economic view, supply is supposed to equal demand. Due to the mortgage crisis and the careless attempts of some to make money, there is a superfluous amount of empty homes throughout the United States. In the subprime mortgage crisis, the nature of the failure was the inability to account for money given to individuals, who lack the appropriate requirements. In order to obtain a loan, collateral is needed. References were not being checked and poor credit history went ignored. People were obtaining loans and not paying attention to the interests rates associated. “This time around, the slack standards allowed millions of high-risk borrowers to get easy home mortgages. When this so-called subprime market collapsed beginning about a year ago, ordinary working people bore the brunt” (Gallagher, 2008). Companies were so anxious to place people in homes, that it cost them billions of dollars and