In my research you will find that I outlined the cause and effect of the mortgage crisis. I also speak on the falling housing prices due to the mortgage crisis and the domino effect that will be created on and for the economy. I will also speak on the foreclosure rates caused by sub-prime loans and no fall back plan to help in the case of the mortgagor defaults.
The Mortgage Crisis
The mortgage crisis that has caused house prices to fall and foreclosures to occur across the United States will create the need to alter the financial mortgage industry policies; as the impact it has can go as far as causing a consumer recession due to the low unemployment rate, rising consumer debt and increasing short term interest rates.
The current financial downgrade will affect credit card loans, home equity loans and prime mortgages causing a consumer recession. The house princess in 2007 fell by almost 6% and the figure is expected to rise another 15% in 2008. This combined with the unemployment rate which in December was at the highest level at 5% is projected to increase to 5.8% by the end of the year (Morrissey, 2008).
There are four major factors involved in the mortgage crisis. The starting point of the whole crisis was the false bubble created when lenders allowed sub-prime borrowers to secure loans without a fallback policy of what would happen in case of a default. Loans were given without proper regulations and borrowers were given amounts of their loans than would be considered “safe” by any financial analyst. Thus, when the economy started to decline and the real estate bubble increased, the number of foreclosures began to rise (Cuneo, 2008).
This began to cause the lenders to take a step back and tighten their lending policies-again without any back-up to allow the borrowers a safe zone. The lenders simply raised the interest rates. With the sub-prime borrowers unable... [continues]
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(2008, 11). Mortgage Crisis. StudyMode.com. Retrieved 11, 2008, from http://www.studymode.com/essays/Mortgage-Crisis-184206.html
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"Mortgage Crisis." StudyMode.com. 11, 2008. Accessed 11, 2008. http://www.studymode.com/essays/Mortgage-Crisis-184206.html.