Subprime Mortgage Crisis

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Subprime Mortgage Crisis Concept Background Subprime mortgage crisis is my preferred topic of discussion. The reason behind taking this topic is that housing is a basic need thus everybody needs it irrespective of the financial situation he is in. In this regard, the idea of subprime seems to be the only way to meet this need in a more professional decent manner. The case of subprime mortgage crisis presents a nice area of study on how a country can solve a financial crisis that was not anticipated, but is affecting many people across different sectors of the economy. Previously, I did not know that subprime can qualify for any mortgage because they have no financial credibility. I am surprised on how financial institutions gave in the temptation of lending money to subprime population hence leading to this crisis. Main Causes of the Subprime Mortgage Crisis Mortgage crisis can evidently be associated with excessive borrowing from the financial institutions without proper considerations of the terms and conditions of the deal. The prospects that surround business in real estate are always promising and this presumption got into the mind of all stakeholders involved in the subprime mortgage lending business. This is because in 2000, the mortgage rates were low and everybody would afford a mortgage. Unfortunately, the financial models were flawed as the rate was adjustable. After many people were nested in the mortgage bracket, greed propelled the rates to levels subprime cannot afford thus leading to foreclosures. It can be concluded that greed, lack of sufficient knowledge and flawed financial models led to the emergency of subprime mortgage crisis. Who is to blame for the Crisis? This is quite a tricky question to answer becau... ... middle of paper ... ...stances who were trying to make an investment. Nevertheless, he agrees that there are those who used fraud to get the mortgages and should be accused. The article on NewYork Times is written by Michael Corkey who reports that large banks made a big mistake in the already troubled mortgage industry in the US. He writes in response to a report released by a federal regulator. In conclusion, this assignment is very educative. One of the key things learned from this assignment is that no matter how one is willing to take a risk, there is always a limit beyond which he cannot go. Banks should never lend to the subprime beyond the threshold provided by the law. This is irrespective of impeding profits from such an offer. Before getting into a contract, it is always important to understand the terms and conditions. This is because moral hazard does not apply everywhere.

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