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Mortgage Crisis Essay

388 Words2 Pages

a. Mortgage companies/ brokers The role that mortgage companies/brokers played, in the subprime mortgage crisis, is that lenders were approving subprime mortgage loans to borrowers with poor credit and a high risk of default. The consumer demand drove the housing bubble to an all-time high in the summer of 2005, which ultimately collapsed in August of 2006. Lenders saw the high demand for mortgages and increase in housing prices as a good thing because the economy was healthy. However, they were not taking into account the consumers whom they were lending to.
b. Subprime borrowers Subprime borrowers were those consumers who managed to get loans and were unable to pay it back. They had poor credit and were a high risk of default. More than 40% of loans were behind on payments or were in foreclosure. Delinquent loans rose from 1.45% to 1.55%. The majority of people who made up the subprime borrower category were irresponsible borrowers with bad credit.
c. “Money center” banks …show more content…

They also charged large fees and received high margins from these subprime mortgages, also using the mortgages as collateral for obtaining private-label mortgage-based securities. This was all a result of the pressure U.S. had on the money centered banks due to regulations that were passed. When increasing numbers of consumers defaulted on their mortgage loans, banks lost money on the loans, and so did banks in other countries. This caused banks to stop lending to each other. Soon it became tough for consumers and businesses to get credit. Among the money centered banks who played a role in the subprime mortgage crisis were JP Morgan Chase, Bank of America, and

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