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2007/2008 Housing Market Crash Research Papers

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2007/ 2008 Housing Market Crash Research Paper The bursting of the “US housing bubble” caused the 2007/ 2008 housing market crash. Financial Institutions, Government-Sponsored Enterprises, buyers, and the market are key details about the crash. Fannie Mae and Freddie Mac were created by Congress. They are an important part of the nation’s housing finance system. These two institutions are “supposed to provide liquidity, stability and affordability to the mortgage market. They provide liquidity (ready access to funds on reasonable terms) to the thousands of banks, savings and loans, and mortgage companies that make loans to finance housing”. Before the crash, Fannie Mae and Freddie Mac had a good influence on the mortgage market by increasing …show more content…

Adjustable rate mortgages, began to increase. These were a type of mortgage that the interest rate changes throughout the time you have the loan. Relaxed standard for mortgage loans were something Fannie Mae and Freddie Mac proposed, these rates were much more available then others were; to unqualified people. Low mortgage interest rates were something determined by a lender, they were more affordable. During this crisis, multiple institutions filed for bankruptcy. The American Auto Industry, The Countrywide Financial Corp, The American International Group, The Lehman Brothers, The Washington Mutual, and General Motors are some examples of institutions that filed for bankruptcy. The American Auto Industry was saved by credit loans. The Countrywide Financial Corp was bought out by the Bank of America. The American International group was rescued by the Federal Reserve, The Lehman Brothers were saved by the Barclays Capital, The Washington Mutual was bought out by JPMorgan Chase, and General Motors was saved by government bailout loans. Borrowers took risky loans to get “more house” by falling for the teaser rates they were offered. Home owners were affected when the mortgage rates went back up because

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During , The Great Depression alot things took a turn for the worse encomically but something that took American families by storm was the foreclosure of thier homes. Home owners worldwide where paying down payments averaging around 35 percent for loans lasting up to only five to ten years interest or up to 8 percent. By the end of the period of thier loan mortage holders had to hope they could either refinance or buy the property. In 1928 thier was well over 5,000 mortgages issed in America. During this chain many banks went under, taking homeowners down with them.

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- Also, in the years prior, credit facility was easily accessible, and people could borrow more than they could earn, and that contributed to the financial instability. Differences - During the 1929 market crisis, the global economies were more restrictive in nature, i.e. protectionism,

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A housing bubble is when the people failed to repay their mortgage, this results in home purchase and housing price rise. When the real estate boom, people cannot afford to pay their loans, which results in the value of assets fall, it also lead to instable economy and downsizing in investment. 2. Explain indirect and direct reasons of the housing crisis.

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These loans also came with higher interest rates. Normally, people with bad credit or who couldn't put down high down payments, found it difficult to take out a mortgage and were often denied. Soon high-risk mortgages became more common, increasing from 5% to 20%. This resulted in a lot of people not being able to payback their loan, and forcing them to take out more loans. It wasn’t long until banks and investors started to lose money, the prices of houses went down and the housing market collapsed.

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A housing bubble was created by banks liberally mortgaging out homes to anyone no matter their credit and bundling mortgages together and selling them to other banks. Because of how they were bundled their credit ratings never reflected the actual risk involved; this practice was unethical but profitable until the system collapsed in 2008 and caused massive losses for both banks and homeowners. The losses were so drastic that Congress voted to bail out several of the banks at the expense of the taxpayers, many of whom were unemployed and facing foreclosure. The economy today is still recovering as interest rates and unemployment continue to return to

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564 Words | 3 Pages

This neglect on assessing the loan borrower's capability to pay led to large-scale defaults which caused a decline in the housing market. Also, bankers repackaged low rated financial tools as CDOs to get a higher credit rating when in reality, the bonds are made of worthless securities. These eventually led to the collapse on bonds concocted from sub-prime mortgages and breakdown of the US economy.

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As a result of the credit crisis, real investment spending decreased by 32 percent from the third quarter of 2007 to the second quarter of 2009 (Holt, 2009). The end of 2007 confirmed the conventional view that the initial financial problems were concentrated in institutions exposed to mortgage securitization. Unfortunately the crisis channeled to other sectors because of the contraction in credit, of banks and other financial intermediaries. It will be analyzed above, how the entities involved in the origin of the crisis mentions above responded during the housing bubble creating a further contraction of credit

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To this day it is the worst financial crisis since the collapse of the stock market in the 1930s. Many people suggest that increased home loans are to blame for starting the problem. The first sign that a crisis was brewing occurred in 2006 when housing prices started to gradually fall. Realtors then celebrated as they thought the fluctuation meant the housing market was on its way to a more sustainable price range. Around the same time, banks started granting home loans that exceeded the price of most properties.

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People who had credit scores below 640 were referred to as borrowers. This crisis arose from packaging American subprime and American regular mortgages into mortgaged back securities. Which were sold in a market which was separate from the traditional prime loans. The packaged mortgages were asset-backed securities so that the likely rate of return would look excellent. Mortgages mainly had a low interest rate for the first year.

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Seconds after the crash, banks were swarmed by tens of thousands of clients, worried that they would leave the building penniless. The aftermath of the crash was so devastating to each citizen of the United States, and eventually to the rest of the world. “The National GDP, at the end of 1929, dropped to 1/3 of its point during the early twenties” (Galbraith). America’s largest and most infamous companies began to tumble down, and eventually went bankrupt. At least half of banks in America were closed down by 1933, and thirteen to fifteen million people became unemployed.

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Countless lender was unable to survive. This caused a downturn in the mortgage industry many people were unable to obtain mortgage loans, however the demand for mortgage loans were great and many applicants were unable to qualify for a loan. Once lenders started collapsing property value also started to decline as well. The lenders across the country set stricter guidelines to reduce the risk of bad paper loans. Conventional loans requirement was a lot stricter now then in the past, conventional loans required lower debt to income ratio, higher credit score, and full documentation.

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The Savings and Loans institutions were made in United States during the period of great depression to construct and sell the houses to save it from another disaster like that of 1930. During that time banks went through huge losses nationwide. The Great Depression of 1930 changed the attitude of financial markets and also the way they were regulated. After that experience government took some measures and passed some acts. First was the Glass–Steagall Act 1933.

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In the fall of 2008, the United States financial markets suffered a loss of value near 30%, making the housing market crisis one of the most terrible periods U.S. history. Mortgage and credit crisis, foreclosures, and the breakdown of banks characterized this period. Beginning in the 1999, the growth of the subprime mortgage market played an important role for what was to happen in 2008. The government's involvement of the crisis, through the Federal Reserve and Federal Housing Administration, can be seen by the relationship of mortage rates and house prices. The banks also played a significant role by passing mortgages to investment banks on Wall Street.

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886 Words | 4 Pages

When the stock market crashed, it sent many Americans into a frenzy. As the panicking and confused public went to collect their deposits from the banks, they found the banks had also over stretched themselves. With their funds already low from lending, the banks started getting withdrawals for savings they no longer had. The banks thus also panicked and tried to fix the problem too late. The banks stopped lending.

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931 Words | 4 Pages

Introduction The housing crash of 2005 is still very fresh for a lot of people. The housing crash cost people thousands and thousands of dollars, and left countless houses foreclosed and uninhabited. Not only did it lower the number of houses being sold it sky rocketed the number and size of loans. “The subprime mortgage crisis of 2007–10 stemmed from an earlier expansion of mortgage credit, including to borrowers who previously would have had difficulty getting mortgages, which both contributed to and was facilitated by rapidly rising home prices” (Duca, 2013).

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