The Market For Purchasing And Selling Houses Collapsed

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 bursting of the housing bubble, known more colloquially as the 2008 mortgage crisis, was preceded by a series of ill-fated circumstances that culminated in what has been considered to be the worst financial downfall since the Great Depression. After experiencing a near-unprecedented increase in housing prices from January 2002 until mid-2006, a phenomenon that was steadily fed by unregulated mortgage practices, the market steadily declined and the prior housing boom subsided as well. When housing prices dropped to about 25 percent below the peak level achieved in 2006 toward the close of 2008, liquidity and capital disappeared from the market.

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.

In 2008 the real estate market crashed because of the Graham-Leach-Bliley Act and Commodities Futures Modernization Act, which led to shady mortgage lending or “liar loans” (Hartman). The loans primarily approved for lower income and middle class borrowers with little income or no job income verification, which lead to many buyers purchasing homes they could not afford because everyone wants a piece of the American dream; homeownership. Because of “reckless lending to lower- and middle-income borrowers who could not afford to repay their loans many of the home buyers lost everything when the market collapsed” (Tankersley 3). Homeowners often continued to live in their houses for months or years without paying any

Because of this downfall of the housing market, the U.S. economy fell along with other markets across the country. Homeowners had mortgages higher than what their homes were valued at, the decline in housing prices caused many people to default on their mortgages which caused the values of mortgage backed securities and CDO’s to collapse, leaving banks and their financial institutions holding those securities with a lower value of

When the housing bubble came tumbling down, there were high defaults rates on the electorate and this led to the emergence of high risk borrowers (Bianco, 2008). These were people with a questionable financial history and may have lacked the sufficient means to sustain their mortgage payments and hence, went under. This occasioned massive loses to all the players in the housing sector. The worst hit was the lenders and the various investors.

Many consumers who are looking to purchase a home again with the recovery of the housing market may not have the ideal financial background to get started. In order to discover whether or not they qualify, these potential borrowers should first consult with a mortgage professional, such as a

The increased pressure on mortgage lenders to be socially responsible and lend to all groups create an opportunity for banks to lend more and charge higher fees to select borrowers who they feel pose a greater risk of default (Palmer, 2015). The primary purpose of the CRA is to assist minorities and lower income individuals from neglect and discrimination. The CRA policy might have forced the banks to implement change to aid individuals who may not qualify for a home loan to be eligible. If the banks did not follow suit with the CRA policies, they might have missed opportunities, such as mergers, acquisitions, and profitability (Elbarouski, 2016). Allen (2011) concluded loose lending led to expanding homeownership in the United States, but lending to riskier borrowers led to an increase in the foreclosure

The housing market had started to decline in 2007, after reaching peak prices in 2006. There was an extremely high amount of subprime mortgages that had been issued in the early 2000’s. Homeowners could no longer afford to live in their homes, payments started going to default, and foreclosures started to rise. According to The Washington Post, there were five contributing factors to the housing market crash: low-doc loans, adjustable- rate mortgages, equity line of credit, more money down than needed, and mortgage insurance.

Prior to the 2008 economic depression, obtaining a mortgage was relatively simple for home buyers. However, many of those mortgages had provisions that made it difficult for borrowers to repay their mortgages (“Dodd-Frank,” n.d.). As a result, many homeowners lost their homes when they were unable to repay their mortgages, which led to the real estate crisis. In 2010 the Mortgage Reform and Anti-Predatory Lending Act, also known as the Dodd-Frank Act, was enacted to reform how mortgage servicers vetted borrowers and to eliminate the use of predatory loan practices (Cheeseman, 2013, p. 485). Under the Dodd-Frank Act, creditors must establish borrower’s credit history, income and expected income, debt-to-income ratio, and other factors before

The insolvency seen in the Housing Market manifested in the large number of stagnant foreclosures caused a dramatic decline in housing prices, which resulted in many homeowners owing more money on their houses than they are worth. Market-level insolvency is caused by capital flight in a specific market in response to a scare during a decrease in solvency. During the scope of this recession, the initial, progressive decrease in solvency was caused by a negative Net Capital Outflow in conjunction with the cash-vacuum produced by the US Budget Deficit, and the scare was caused primarily by the failure of several significantly-sized corporations and a rapid increase in foreclosures caused by the loss of a large number of jobs.

The types of problems in which they are faced with include being turned down due to their poor credit score and, if approved, they are being faced with higher than average interest rates which make the payments more difficult and less appealing. (Leopard). Even though they are financially stable and are able to make the payments, it is difficult to be approved for a loan in this cautious economy.

Two major effects included the collapse of the housing market and an increasing unemployment. Shortly after the credit swaps and CDO's gave up, the housing market immediately crashed due to many foreclosures and loss of property value. Foreclosures of homes soared to 81% in 2008 and were up 225% compared to 2006 (CNNMoney, Cable News Network). A total of 861,664 families lost their homes due to foreclosure in 2008. The numbers were so astronomically high that one out of every 54 households received an eviction notice (CNNMoney, Cable News Network). Foreclosures and home values have a direct correlation, so home and property values dropped to an extreme low. Since many homes were beginning to foreclose, it drove the price of other homes down, resulting in the owner selling the home for much less than what they initially bought it for. This results in homeowners owning more than their homes are worth, consequently falling behind on their mortgage payments. Large metropolitan cities such as Los Angeles, San Francisco, and Miami saw house prices fall 30% and

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.