The Issue Of The Subprime Mortgage Crisis Essay

The financial crisis from2007 to 2008 is considered the worst financial crisis since the Great Depression of the 1920s and destroyed the U.S. economy severely. It led the housing prices fell 31.8%, the unemployment rate rose a peak of 10% in the United States. Especially the subprime market, began defaulting on their mortgage. Housing industry had collapsed. This crisis was not an accident, it caused by varies of factors. The unregulated securitization system, the US government deregulation, poor monetary policies, the irresponsibility of 3 rating agencies, the massed shadow banking system and so on. From my view, the unregulated private label mortgages securitization is the main contribute factor which led the global financial crisis in 2008.

During 2007 through 2010 there existed what we commonly refer to as the subprime mortgage crisis. Through deduction of readings by those considered esteemed in the realm of finance - such as Ben Bernanke - the crisis arose out of an earlier expansion of mortgage credit. This included extending mortgages to borrowers who previously would have had difficulty getting mortgages; this both contributed to and was facilitated by rapidly rising home prices. Pre-subprime mortgages, those looking to buy homes found it difficult to obtain mortgages if they had below average credit histories, provided small down payments or sought high-payment loans without the collateral, income, and/or credit history to match with their mortgage request. Indeed some high-risk families could obtain small-sized mortgages backed by the Federal Housing Administration (FHA), otherwise, those facing limited credit options, rented. Because of these processes, home ownership fluctuated around 65 percent, mortgage foreclosure rates were low, and home construction and house prices mainly reflected swings in mortgage interest rates and income.

The crisis that stressed lots of economies and financial systems originated in US mortgage lending markets. First signals of possible problems came in early 2007, when the Federal Home Loan Mortgage Corporation announced about its inability of purchasing high-risk mortgages, after what New Century Financial Corporation - a leading mortgage lender to riskier customers - filed for bankruptcy (John Marshall, 2009). In the research paper of 2009 he claims that source of the crisis emanated from the rise of house pricing, called housing bubble. “US house prices rose dramatically from 1998 until late 2005, more than doubling over this period, and far faster than average wages. Further support for the existence of a bubble came from the ratio of house prices to renting costs which rocketed upwards around 1999..” (John Marshall, 2009, p 10). Housing bubble was also fully analyzed by Dean Baker in his research “The housing Bubble and the financial crisis” in 2008. Dean noticed that, by the middle of 2007, house prices had peaked and began to head downward.

Did you know that you can take up to 30 years to pay off a mortgage in Canada?

To classify root causes as to why financial crisis occur, one needs to go follow a systematic approach to this problematic situation. Be it human related failures or bank regulators failures, the financial crisis was unavoidable considering the ongoing circumstances.

There are number of issues which are believed to be the reason behind the home mortgage market crisis that occurred in 2008. Firstly the “housing bubble”, the home mortgage market problem which our economy is suffering from right now. It started with the “bursting” of the U.S. housing bubble which started in 2001 and reached its highest in 2005. The

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 U.S. subprime mortgage crisis was a set of events that led to the 2008 financial crisis, characterized by a rise in subprime mortgage defaults and foreclosures. This paper seeks to explain the causes of the U.S. subprime mortgage crisis and how this has led to a generalized credit crisis in other financial sectors that ultimately affects the real economy. In recent decades, financial industry has developed quickly and various financial innovation techniques have been abused widely, which is the main cause of this international financial crisis. In addition, deregulation, loose monetary policies of the Federal Reserve, shadow banking system also play

The United States (U.S.) subprime mortgage crisis, also known as the “mortgage mess” or “mortgage meltdown,” was a set of events and conditions occurring from 2007 to 2010, which contributed to the U.S. great recession, the worst since the 1929 Depression. It was also the longest, lasting for 18 months (December 2007 - June 2009). It came to the public’s attention when a steep rise in home foreclosures in 2006 and seemingly out of control in 2007. It was triggered by a huge decline in home price resulting from the collapse of housing bubble, leading to a rise in subprime mortgage foreclosures, triggering a national financial crisis that went global within the year. The US sub-prime mortgage crisis

In 2008 America was hit with a massive “mortgage meltdown” known as the Subprime Mortgage Crisis, a period from 2000 to 2005 where foreclosures on houses reached an all-time high. It was within this time that consumer spending fell, the housing market plummeted, and the stock market shook as foreclosures continued to increase. This crisis and its fallout created a sense of discord amongst consumers and urged debate over the causes and resulting after-effects between politicians and legislators. This report will look into some of those causes and the effects that were experienced shortly

One of the first indications of the late 2000 financial crisis that led to downward spiral known as the “Recession” was the subprime mortgages; known as the “mortgage mess”. A few years earlier the substantial boom of the housing market led to the uprising of mortgage loans. Because interest rates were low, investors took advantage of the low rates to buy homes that they could in return ‘flip’ (reselling) and homeowners bought homes that they typically wouldn’t have been able to afford. High interest rates usually keep people from borrowing money because it limits the amount available to use for an investment. But the creation of the subprime mortgage

To understand the financial crisis and its original reason, the journal has described clearly, “the financial crisis that has been wreaking havoc in markets in the U.S. and across the world since August 2007 had its origins in an asset price bubble that interacted with new kinds of financial innovations that masked risk; with companies that failed to follow their own

In addition, members of the market were looking for “higher yields” without realizing the risks and did not do proper research on the real estate industry. Meanwhile, insubstantial financial standards, unreliable preparations of risk management, and gradually complex and not clear financial products together created some weaknesses in the real estate system that led to the so-called “subprime mortgage crisis.” These are some of the causes of the subprime.

Although there has not been a consensus on an exact causation —due to its global nature—there has been unanimity on a number of factors. As in the case of its sister crisis (the Great Depression), many scholars acknowledge that before this cataclysm struck, the preceding economy did in fact experience a “boom” period. Most critics are also in accordance that the trigger of this crisis had to involve the subprime mortgage bubble—which collapsed in the United States—however, that alone could not represent the exact causality of this crisis. Just as in the Great Depression, there were a variety of contributing factors that resulted in this financial catastrophe.

According to (Malpass, 2010) one the main reasons that caused the crisis is a Housing Market in US. Between 1997 and 2006, average house price has increased by 122%. In the end of 2001, national home price average median was ranged from 2.6 to 3.2 times median income per household. Proportional ration has grown to 4.0 in the beginning of 2004 and 4.6 in 2006. This has resulted to housing bubble “A run-up in housing prices fueled by demand, speculation and the belief that recent history is an infallible forecast of the future.” (Investopedia, 2014). Many householders started to refinance their estates at lower interest rate, or even taking second mortgages. In the middle of 2008, housing prices had been declined by 20% comparing to their 2006 peak. Easy loans and trend of house