Americans were willing to live beyond their means, and bankers were willing to finance the dream. The biggest problem with this easy money was the obvious lack of responsible financial regulation. “Stated income” allowed anyone to easily commit fraud for a home loan, and banks weren’t worried about the money they lent since the loan was ultimately backed by the government. Sub-prime borrowers were given the opportunity to get mortgages, and no money down allowed people to get a home loan without really having “skin in the game.” Second mortgages were only icing on the cake and people figured that as long as house prices kept rising, home equity could be used as an instant cash machine to live even further beyond their means. As long as the lenders were collecting high interest and the borrowers monthly payments were low, everyone was happy. Wall Street was making a fortune selling CDO’s and encouraged banks to make lending even easier, and the people signing their names to the loans were more than willing to live a superficially wealthy lifestyle in debt. Ironically, Wall Street was named after walls that were constructed to keep out wild pigs, but the walls of financial responsibility had been taken down so that everyone could come in to feed on the mortgage frenzy. AAA rated CDO’S were sold all around the world as “safe investments”, but they ultimately relied upon a select group of Americans being able to make their monthly mortgage payments. Predictably, people began defaulting on the home loans that most could never even afford to begin with, and many now owed more than their house was worth after taking out equity loans. Many have made the decision to abandon their homes entirely considering it a bad investment to continue ...
... middle of paper ...
...ld be reexamined.
The last part of my approach is to enact consumer protection for those who were responsible with their mortgages but just came across tough times. We need to create insurance policies for people with loans that would make mortgage payments if they are unemployed, sick or injured, and cannot work. Mortgage insurance would provide protection for the both consumer and the value of the housing market, and is a critical piece in preventing foreclosures.
I sincerely hope that Obama’s administration takes urgent steps in promoting practical solutions to the housing crisis and takes precautionary measures to ensure that history does not repeat itself. It will be interesting to watch the future unfold as the “teaser rate” mortgages default and to see how government intervention affects the outcome of this unique situation facing the American people.
We have insurance for the actual home, yet none exists for the most important part of keeping one of our most valuable possessions: the monthly payment. I firmly believe that everyone should be required to purchase mortgage insurance when he/she buys a home. The premium would be included in the monthly payment. For instance, twenty (20%) percent of the monies would go toward the loan, and then ten percent (10%) of the total loan would be contributed to insurance. Then, if the mortgage holder loses income, the mortgage would be paid for one year or until the individual sought employment or reliable income. During the period of unemployment or lack of income, the holder can also apply for a $5,000 grant to start a new business (monies granted must accompany a business plan and are subject to approval). After the one-year period, the t...
There was a new concept of credit nicknamed "buy now, pay later." Not long after this concept came to be, the stock market crashed. For the decades before the current housing crisis, buying homes and loaning money was a simple, but strict, affair and had two outcomes. Either the borrower could pay back the money owed, or they could not pay the money back. If the borrower could pay the money back, they could keep their house or whatever they took out the loan for.
Although the crisis came to head in 2008, there were people who had realized that trouble was coming for years. The largest warning sign was the amount of credit in the market place. Many of the big companies and banks had very little capital, and the lack of capital was brought on by the housing bubble. Companies were lending too much money to people who could not pay them back. And even before people started to default on their mortgages, people could see that this was a problem. During a meeting with the Senate Committee on Banking, Housing, and Urban Affairs in January 2007 the staff of the Federal Reserve admitted “that they were aware of [the] problem in the housing issue three years earlier” (Dodd). And they were not the only ones. As far back as 2001 there were people who saw the danger that sub-prime mortgages were and who were trying to have bills passed to stop the bad lending that was going on, but no one wanted to list...
In the article Predatory Lending and the Devouring of the American Dream, the article talks about how subprime mortgages were a booming success in the mid- nineties to the early two-thousands. It was a success because subprime mortgages offered an opportunity for people with bad credit history or people from the lower class of society to actually be able to purchase a home. The only consequences of doing subprime mortgages is that there is a high interest rate which makes paying off the home in a reasonable time impossible. More and more people started to apply for subprime mortgages, therefore, causing a crisis. The crisis was because people could not keep paying on their homes, so foreclosures happened. The percent of people applying and getting approved for subprime loans went up anywhere from seven to eight percent every year which also was a contributing factor in the crisis. The fact that the perfect home went up nine hundred square feet in four years, and eighteen years later was up by eighty-five hundred square feet is just an example of how the American Dream was going up in size but down in value.
•Merrill Lynch, a massive investment back on Wall Street was the starter of the biggest mortgage companies to go wild. Merrill plan was to do a subprime mortgages that would get people to fail on their own toxic products. He knew those debts would stack up and then people would not afford to pay off that mortgage. His plan was to secretly bet against or insuring themselves to fail. Merrill only focused on making more money by doing subprime mortgages. Therefore, the plan was to get mortgages that would not be sustained and redo it into a subprime mortgages. Indeed he would sell them off other corporation that would not question the investment and would more likely not be able to understand the possible risk of buying it. Merrill was doing
Years of cheap credit, combined with government incentives to get people to purchase homes, debt securitization that hid the risk of low quality loans, and Government Sponsored Entities (GSEs) that lowered standards for purchasing mortgages created a situation that compelled lenders to make riskier and riskier loans. Individuals who had formerly not been able to purchase homes had access to credit like never before. With more and more people buying houses, prices soared and real estate looked like a sure-fire way to make money. Adjustable rate loans or loans with a huge balloon payments were not seen as potentially unaff...
Selection of The Criteria Criterion 1: Economic Feasibility. The purpose of this criterion is to answer the question, Does the whole benefit and savings of implementation of this alternative outweigh the other costs of implementing it? Alternatives will also be measured for cost to New Zealand in terms of staff and program resources. An optimum program would require minimized use of these resources. Minimum budget required is the most desirable outcome under this criterion.
In essence, the problem leading to the foreclosure crisis is the recent decrease in people’s ability to make their loan payments due to job loss and lower wages brought on by the economy’s weak state. Rather than throw billions of dollars at big banks in the hope that they find ways to help the homeowners’ loans, the government should attack the problem through the individual. Simply, the government aid being spent in the hopes of stimulating the economy should be funneled toward reducing the balance of home loans to make the monthly payments affordable for the owner. By funneling the government aid directly to the American home owner in need, the economy would greatly benefit as homeowners regain their footing with their budget because the economy and foreclosure are directly related. When one hurts, so does the other; when one prospers, the other does as we...
As the lease of my apartment is coming to an end it had me thinking of achieving my own American Dream of home ownership but as I do my research I find the dream is far from coming true. I am sure that the issue of housing prices and rent rates are what most of us Bay Area residents talk about and debate. It is an issue that needs to be addressed by the officials of the area, city mayors, affordable housing committees, social justice activists,lawmakers, and even employers. Skyrocketing prices, low inventory, and investors’ bidding wars are not only pushing the middle and lower classes out of San Francisco and the Bay Area out but will completely eliminate them.
In the early 2000’s the housing market boomed, real estate was a hot investment and everyone was looking to buy a home. However not everyone can afford a home and a majority of people were forced to take out a mortgage to purchase real estate. During the housing boom banks were supplying subprime loans and upping the risk in the real estate market. These loans were not only risky but irresponsible on the part of the banks’ lending them, and although individuals receiving the loans thought they were being helped at the time, these loans were a major reason why so many people their homes, almost crippling toe U.S economy as a whole.
It is often easy to castigate large cities or third world countries as failures in the field of affordable housing, yet the crisis, like an invisible cancer, manifests itself in many forms, plaguing both urban and suburban areas. Reformers have wrestled passionately with the issue for centuries, revealing the severity of the situation in an attempt for change, while politicians have only responded with band aid solutions. Unfortunately, the housing crisis easily fades from our memory, replaced by visions of homeless vets, or starving children. Metropolis magazine explains that “…though billions of dollars are spent each year on housing and development programs worldwide, ? At least 1 billion people lack adequate housing; some 100 million have none at all.? In an attempt to correct this worldwide dilemma, a United Nations conference, Habitat II, was held in Istanbul, Turkey in June of 1996. This conference was open not only to government leaders, but also to community organizers, non governmental organizations, architects and planners. “By the year 2000, half the world’s people will live in cities. By the year 2025, two thirds of the world population will be urban dwellers ? Globally, one million people move from the countryside to the city each week.? Martin Johnson, a community organizer and Princeton professor who attended Habitat II, definitively put into words the focus of the deliberations. Cities, which are currently plagued with several of the severe problems of dis-investment ?crime, violence, lack of jobs and inequality ?and more importantly, a lack of affordable and decent housing, quickly appeared in the forefront of the agenda.
When subprime mortgages began to flourish, the term housing bubble came into existence. The term relates to the time in which houses sharply increased in value, and consumers often borrowed at less than the lowest rates. People believed that the price of their homes would rise and they could then refinance for lower payments. The problem with that mentality is many people didn’t just refinance for lower payments, they also refinanced for personal spending. Inflation of home prices meant homeowners suddenly had more equity and were able to spend the money as they chose.
Not since the Great Depression of 1929 has America experienced such economic chaos, job and housing loss. Perhaps housing loss was not as wide-spread then since there were fewer homeowners. The government supposedly put in measures designed not to let those on Wall Street cause the same thing to happen again. Yet, here we are some eighty years later in the same situation. It seems that history keeps repeating itself. The question is why? The answer is greed. Unfortunately, the question "how can we stop it from happening again"? cannot be answered in one definitive statement. Of course the solution to preventing home foreclosures is "prevention," which in itself comes with a lot of variables.
“One out of every two hundred homes will be foreclosed every month, making it 205,000 new families entering into foreclosure,” Mortgage Bankers Association. The housing industry in the United States is undergoing an unfortunate crisis. There are way too many homes being foreclosed, which causes a ripple of problems. President Obama has been brave enough to take office at a time of need. Creating plans like the Recovery Act is a wonderful start in fixing this problem.
Affordable housing in the United States describes sheltering units with well-adjusted housing costs for those living on an average, median income. The phrase usually implies to applied rental or purchaser housing within the financial means of lower-income ranges specific to the demographics of any given area. However, affordable housing does not include those living in social housing owned by government and non-profit organizations. More specifically, the targeted range for housing affordability sets below 30 percent of a household's annual income, including all applicable taxes, utility costs and home owners insurance rates. If the mean income per household breaches the 30 percent mark, then the agreed status becomes labeled as "unaffordable" by most recognizable financial institutions.