The Global Financial Crisis of 2008: Can Dodd-Frank Help? The Financial Crisis of 2008 became an

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The Global Financial Crisis of 2008: Can Dodd-Frank Help? The Financial Crisis of 2008 became an experience that the American people will not forget any time very soon. The country took a direct hit to the financial sector during the crisis due to several changes that had taken place. Banks and financial investment companies were two of the many types of businesses that suffered. The consumers began to be fearful when it came to working with banks and financial investment companies. As a result of the crisis, new regulations were put in place to keep everything regulated. The regulations of the Dodd-Frank Wall Street Reform and Consumer Protection Act were made to monitor and track the financial firms and enforce regulations to keep from…show more content…
Because of their size, they were able to buy these from banks to allow banks to have funds available to continue lending (Conners and Gwartney 63). This is where the problem begins for the housing industry. Lenders began writing loans to borrowers without thoroughly checking their credit ratings and accepting a lower down payment because the mortgage would be passed on to Fannie Mae and Freddie Mac for them to hold (Conners and Gwartney 64).
When housing prices began to drop and interest rates began to rise, borrowers couldn’t afford their monthly payment. When the loan amount became higher than the worth of the house, the borrowers simply walked away and defaulted on their loans (Conners and Gwartney 64). This caused the banks, as well as Fannie Mae and Freddie Mac, to have many default loans on their books.
One of the major problems associated with Fannie Mae and Freddie Mac purchasing these loans from banks and lending institutions is that a lot of the loans were very risky due to the lending officer not following proper protocol since they knew the loans would eventually be transferred out of their hands and in to the hands of Fannie Mae or Freddie Mac (Conners and Gwartney 64). When consumers began to default on the these loans, Freddie Mac and Fannie Mae began reviewing the loan information and when they realized that the loan was not properly screened, they filed suit against the bank that the loan was bought from. The Federal Housing Finance Agency, a
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