4) Did subprime mortgage loans contribute to the housing bubble? Why did the bubble burst? What were consequences of the housing bust to borrowers, loan originators, and MBS and CDO holders? Did subprime mortgages contribute to the U.S. ﬁnancial crisis of 2008?
Subprime Mortgage loans did contribute to the bubble and crash but they were just the cards played by the government and the policies that rule them. The department of housing and urban development was pushing national homeownership since 1995 and the doing away with down payments. This was a big problem because everyone started riding the coat-tails of these MBS’s and credit started loosening drastically. After this boom, the housing department then adopted mandates for the government enterprises that issue these securities, Fannie and Freddie. Springing from 342 billion in 1997 to 741 billion a year later was this new issuance of MBSs and the beginning to bubble burst. Because the GSEs believed that the government would protect them from any losses due to the implicit guarantee from it, they continued on issuing these loans to the country. Bringing the idea that everyone and anyone could finance a home caused demand to rise and so did house prices. Along with these initial mandates, lowering of credit scores and increasing allowable debt for borrowers came in 2000 by the HUD. From 469 billion in 2000 to 2.2 trillion in2003 shows how the housing bubble with these government backed securities, toxins, just kept being pumped into the market and would soon be gone. The housing bubble burst has taken a heavy toll on the real estate industry and many others. Everyone from construction workers to termite inspectors to mortgage brokers and real estate agents have seen crippling declines in need for them. Statewide, the number of loan officers has been cut in half in the past three years, starting in 2011, according to the California Association of Mortgage Professionals. Loan officers especially have been...
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