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Effects of subprime mortgage crisis
Current housing crisis
Current housing crisis
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Subprime loans can be harmful to the economy as it has been displayed in Countrywide’s financial struggles. Subprime loans can be classified as ethical acts provided by lending agencies. Loans such a subprime loans are considered ethical because they cater to more of a middle-class family. Also, subprime loans can be classified as unethical. Subprime loans which are hastily defaulted, and are sometimes outright fraud have taken over the housing and automobile industry (Coppola & Butters, 2017). More than fifty percent of loans distributed are classified as subprime loans. In today’s economy, subprime loans are sky-rocketing because more and more people are struggling financially. Subprime loans can be ethical because lenders can offer lower …show more content…
Subprime loans can cause extreme stress on borrowers because the interest rate is so much higher than the traditional loans which force borrowers to pay more. Naturally, when higher interest rates are offered, more money will be lost by the lender. Another reason why subprime loans are considered unethical is that it increases the number of delinquent loans. Delinquent loans are loans that the borrower has not paid back or are overdue on their payments. Naturally, when it comes to delinquent loans, lenders are forced to make rational decisions to benefit themselves (Gardner & Mills, 1989). The financial crisis played a significant role in why subprime loans are unethical. During the financial crisis, houses became too much of an expense because borrowers were obtaining less income. Therefore, the housing market crashed, and many people were left evicted. Banks began to foreclose on houses that people could simply not afford anymore (Ferrell, Fraedrick, & Ferrell, 2015). Other significant industries were also suffering because of this financial downfall. The automobile industry began to experience customers or borrows who could not pay their car note. In this result, the car became repossessed by banks, and the dealing auto sector was at an all-time
Predatory lending usually occurs when financial institutions take unfair advantage of consumer’s financial needs by extending credit with terms that compensate them over and beyond the credit risk. Predatory lending comes in different forms, but always involve the consumer paying high interest rates and exorbitant fees. Some predatory lending practices include:
The first major point that Gretchen Morgenson makes in her article “The Debt Trap” is how lenders have found ways to make a bigger profit from borrowers in the recent years. Shes states that for example, “the rates that credit card companies charge borrowers rose from 17.7 percent in 2005, to 19.1 last year”. That difference added to billions of dollars charged annually. She stated that overall, these lenders increased “junk fees by fifty percent in recent years”. In the capitalistic society that we live in, these lending companies are doing everything they can to make as much of a profit as they can. If this means shoving Americans into the ground in the profit, they do not seem to feel bad about it one bit. This has created a problem with
December of 2007 saw the beginning of the worst economic downturn in memorable history; not since the end of the Great Depression in 1939 has the world seen such a devastating and long-lasting economic breakdown. The Great Recession shook the public’s faith in the capitalist system and silenced those who claimed a modern economy was impervious to another broad collapse like the one in 1929. Discontent and mistrust from the public has built not only with large corporations and the financial sector, but also with the government whose legislature and policies in recent decades seem to coincide with the interests of private corporate power-houses. These lenient policies contributed directly to the recession that affected individuals across the globe. Stunted wages, increased poverty,
Leading up to the crisis of the housing market, borrowers got mortgages without understanding the terms. Banks were giving out loans to people the banks weren't sure could pay the money back. The closer to the crisis, the higher the frequency of illegitimate loans and mortgages. Because there were so many mortgages on houses that could not be paid back, millions of mortgages were foreclosed on, and the houses we...
"Debate on Student Loan Debt Doesn 't Go Far Enough." Applebaum, Robert. Hill (2012). Print.
First, the causes of the foreclosure crisis must be examined. I don’t think that the causes are all that complicated. In the end, the cause is twofold: First, people were buying houses they couldn’t afford, and banks were lending money to these people. Second, banks were engaging in unscrupulous lending practices. They were charging people money that these people neither were expecting to pay nor were able to pay. They were advertising one interest rate and actually putting another in the contract. I’m not sure what the law says about this last bit, but that sounds a lot like ‘fraud’ to me. If my reader disagrees, then I ask him to imagine the following:
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.
subprime mortgages were major factors of the collapse of the 2007-2009 economy collapse. All of America suffered from the 2008 recession.
One cold morning Sam Black woke up with aching chest pain. Troubled by this new condition he went to see his Heart Doctor. Little did Sam know that hours later he would be lying on the operating table in route for a triple bypass surgery. The surgery went as planned, but it was not the last of them. Sam was sent to many specialists and rehabilitation centers, building a large bill, which they had no money to pay them with. He still pays several grand a year for the medication he is prescribed. Years after the operation Sam and his wife, Elsie, have narrowly escaped foreclose, however the most problematic debt they have is the hundreds of small term loans with interest rates in the triple digits. Elsie once said in an interview regarding the loans they had to take out, “You can’t really keep up with them” (Wright, 2011). Almost a decade later Sam has trouble speaking and has to carry around an oxygen tank. This is a normal couple that got caught in the continuous cycle of payday loans. Like other millions of Americans The Black family settled for shady overpriced short-term loans.
Individuals like the two young and rambunctious mortgage consultants portrayed in the film gave loans to anyone and everyone that could sign the paper, regardless of the recipient’s ability to pay the loan in full. It is doubtful that all consultants fully understood the ramifications of their actions, but undoubtedly the overall disregard for consequence was the start of the collapse. Mortgage consultants mislead and tricked people into loans they could never afford by playing on their desire to live the American dream. Distributing adjustable rate loans to individuals without jobs, without collateral is unconscionable. Unfortunately, from their perspective they were helping these individuals. In a twisted way, these consultants were acting ethically from a utilitarian point of view. The consultants won because they received utility in the form of a bonus for distributing the loans, and the loanee won because they could now afford the home of their dreams. What the consultants didn’t consider in their calculations were the long term results and utility of their actions, unethically building the flawed foundation of the housing
I guess most of you’ve heard the words Subprime Crisis again and again on TV when you were a middle school student 6 years ago. You may not know what it was when you were a child.
This blog post describes research on the effect of limits on payday lending. It notes that a study by Harold Cuffe and Christopher Gibbs has found that such restrictions not only restrict the number of payday loans being made, they also significantly reduce sales at liquor stores, particularly for those within 33 feet of a payday lender.
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
The subprime mortgage crisis is an ongoing event that is affecting buyers who purchased homes in the early 2000s. The term subprime mortgage refers to the many home loans taken out during a housing bubble occurring on the US coast, from 2000-2005. The home loans were given at a subprime rate, and have now lead to extensive foreclosures on home loans, and people having to leave their homes because they can not afford the payments. (Chote) The cause and effect of this crisis can be broken down into five major reasons.
The subprime mortgage crisis of 2007 highlights how financial institutes acted out of their self-interests and neglected the consequences of their actions on the community and society at large. Investors pursued after higher returns through engaging in risky investments involving subprime mortgages. When the housing bubble burst, the subprime mortgage industry collapsed and caused a financial liquidity crisis (BusinessWeek, 2007). The action of the financial institutes had a spill ove...