The Media And Its Effects On The United States

Investors relished in these mortgage backed securities. They paid a higher rate of return than investors could get in other places, and appeared to be safe bets. Home prices increased; Leading lenders to believe the worst case scenario, homeowners would default on their mortgage, and they could sell the house for an additional amount of money. 1 At the same time, credit rating agencies continued to inform investors that mortgage backed-securities were safe investments. Investors were desperate to gain more securities. Promoting lenders to help create more of them. However, to create more, lenders needed more mortgages. This caused lenders to loosen their standards and provided loans to individuals with low income and poor credit. These are referred to as subprime mortgages.2 Eventually, some institutions begin using what is referred to as predatory ending practices to generate mortgages. They made loans without verifying income and offered absurd, adjustable rate mortgages with payments individuals could afford, at first, it became disorderly quickly. Subprime leading was a new practice at the time. These investments were becoming increasingly less safe. However, investors trusted rating, and continued to

Stability and security in life: the American dream. These virtues drive many life goals, namely, owning a home. Unfortunately, since the “Great Recession” of the early 2000s, the American dream has become that much farther from reach as millions of Americans were foreclosed upon. Now that the once plummeting economy has begun to level off, the recovering people are seeking homeownership in the near future. The problem: affordability. The ideal home takes away about a third of one’s income, leaving those transitioning from temporary housing to new home in a financial limbo.Despite the bleak situation, it is still possible to navigate through hardships into a new home.

The subprime mortgage crisis was a result of mortgage brokers selling mortgage products to people with terrible credit, no down payments for the house, no stable income into the home, and basically no nothing instead of selling it to responsible people who they knew would not default on their mortgage. (Let’s call the reliable homeowners prime and the unreliable ones sub-prime for times sake). They would give out home mortgages to everyone knowing that they wouldn’t be responsible for the mortgage that they give out, but that they would be able to sell them to investment bankers, who would then sell them to investors, hedge funds, etc or at least be left with a house as housing prices always rise. But let’s start from the beginning of how this whole mess started.

Hoskins, S., Jones, K. and Weiss, N. An Overview of the Housing Finance System in the United States. [online] CRS Report for Congress. Available at: http://fas.org/sgp/crs/misc/R42995.pdf

The years preceding the market melt down, homeownerships were painted as an American dream in a hyped fashion instead of a responsible investment. The demand for homeownership and immediate profit drove up prices in an unhealthy rate, and fueled a competition among buyers to use real estate as a vehicle to make quick money. That silently destroyed the American dream of homeownership. The competition spread to financial institutions to creatively fit unqualified borrowers into homes and finance over leveraged investors. The biggest debt an individual ever taken on their life time came with the least amount of information, if any. The entire real estate became a pure transaction number, from how much will the buyer able to sell the home they have yet to purchase to how much can real estate professionals make on the deal, to how quickly it can be closed. We saw an enormous amount of buyers not knowing what type of loan programs they just obtained and how it’ll play out through the life of the loan. We heard buyers fascinated in how easy it is to obtain a mortgage loan and the expectation that no one should be denied. The other interesting component is the lack of qualified professional involved in the

During the housing boom, the insecurity of consumer’s financial situations was used by those in finance to make a profit. Many entities were enticed by their greed to take risks and cut corners that ultimately affected the consumer, not themselves. The consumer’s own search for profit and their trust in the housing market made it easy for them to be lured into the gambling game being played by banks and investors.

In the early 2000 Countywide was the largest provider of home loans in the United States, with one in six loans in the U.S. originating with Countywide. Countywide also offered loan closing, capital market, insurance, and banking services to its clients. Countywide had also diversified into the securities market by 1970. In 1992 they had created a program called “House America” that enabled more consumers to qualify for home loans, while paying smaller down payments. In 2003 they proposed the “We House America” program with the goal of providing $1 trillion in home loans to low-income and minority borrows by 2010. The company had a great reputation, it has delivered its investors a 23,000 percent return, which exceeded the returns of companies like Washington Mutual, Walmart, and Warren Buffett’s Berkshire Hathaway by 2003. Unfortunately, the company’s reliance on a leading practice that was put into place to aide low-income individuals, also helped to contribute to its downfall (Fraedrich, Ferrell, & Jackson, 2011).

In this reflective case study I will discuss the financial crisis that occurred in the U.S. in 2008 which precipitated one of the largest catastrophe within the housing market causing a collapse amongst the financial institutions. I will also discuss about how the banks were at fault for giving out loans to individuals who were not capable of affording to pay these loans back and all financial institutions that should have had regulations on the loans that were dispensed as well. Though, the collapse with the financial institutions was not only because of faulty loans that were given out but the overvaluation of securities which caused U.S. real estate prices to descend, the overvalue from some of the subprime mortgages, financial

Since 2006, the number of foreclosures in the housing market has sparked dramatically. This is due to the fact that banks have given out subprime mortgages or interest-only loans to consumers regardless of their credit score. One of the main reasons why banks did not care about consumers’ credit history is because they resold the loans as mortgage-backed securities. This caused the loans to fall into the hands of credit rating companies that rated the loans too positive; thus, these assets were expanded and helped lead to the foreclosure crisis without hurting the banks directly. The goal was that banks lustily sought the big payoff that these mortgages could provide. The mortgages and loans let low-income consumers pay only a low rate of

The burst of the housing bubble in 2006 left millions of homeowners helpless to inevitable foreclosure. Current lending practices make it difficult for potential borrowers with tarnished credit histories (like foreclosure) to qualify for a loan. Since traditional sources of home financing are unavailable to so many people, alternatives have begun to flourish in the economy to meet the demand of people wishing to purchase homes with less-than-perfect credit histories. The primary options boomerang buyers have at their disposals to obtain home ownership again are: lease-to-own, seller-financing, hard money, and sub-prime. Each of these paths toward home ownership comes with unique sets of benefits and costs. This paper will explore each.

An unprecedented era of greed and complete lack of transparency led to the economic crash, and housing bubble of 2007 and 2008. I will address the individual home owner later on in this essay, but first I will be addressing the issue of the “CDO”, which most Americans still don’t understand. The “CDO” was used maliciously to make money for the CDO brokers and major CDO creators, investment banks like Lehman Brothers and Morgan Stanley, as well as insurance giants like AIG.

When sky-high home prices in the United States turned downward, the entire United States financial sector and financial markets overseas faced its most dangerous crisis since the Great Depression. It all began when mortgage dealers loaned home loans to families that did not qualify for ordinary home loans. The terms of these loans were unfavorable the borrowers. These subprime mortgages may have started with low interest rates

The problem was everyone who qualified for a mortgage already had one. Lenders knew if they sold a mortgage to a person that defaults the lender gets the house, and houses were always increasing in value in that market, that would be a valuable asset to sell. To keep up with the demand from investors, lenders started selling mortgages to borrowers who wouldn’t have qualified before because of the risk for default. These mortgages are called sub-prime mortgages and lenders started creating tons of them. In the unregulated market, lenders employed predatory tactics to get more borrowers with attractive offers such as no money down, no credit history required, even no proof of income. People never would have qualified before were now buying large houses, and the lenders sold their mortgages to Investment bankers. The investors packed subprime mortgages in with prime mortgages so credit agencies would still give a AAA rating. The rating Agencies who had a conflict of interest by receiving payments from the investment banks, had no liability if their credit ratings were correct or not. They turned a blind eye to the risky CDOs and kept giving AAA ratings. This worked for a while and everyone was happy including the new homeowners. The housing market became hyper inflated with more homeowners than ever. Wall Street continued to sell their CDO’s which were ticking time bombs. The subprime mortgages began

There were several things that caused the subprime mortgage crisis of 2008. Research by Ryan Barns (Barns, 2008) supports the idea that the path to mortgage crisis was the result of too little oversight and too much greed. First with the popularity of the World Wide Web in the early 90s, we began to see the emergence of many Internet based companies. This was known as the Dot com “bubble”. These internet companies were growing so rapidly they were making e-commerce millionaires very quickly and everyone wanted in. Many people were investing heavily into internet based companies with the hopes of huge returns. One of the problems with this was that there was no way to determine the actual value of these companies because many of them had no actual product and the stock price vastly outgrew the actual worth, eventually this created

For many homeowners in this languishing market, selling a house isn’t really an option due to the fact that most homebuyers are too scared to take the plunge into financing a mortgage. A couple of reasons are that an overwhelming