Households from all over the United States are currently experiencing massive wealth destruction. Even after the housing crash that led to the financial crisis and the eventual bailout of the financial institutions, individual families are still seeing their homes being foreclosed and their life savings diminishing to nothing. The government assistance programs that have been implemented so far have only helped the institutions that created this crisis and the families who are hurting the most have yet to receive any significant assistance.
Foreclosures are still happening throughout the country in both suburban and urban areas. We can all agree that foreclosures in any neighborhood are detrimental to the community as a whole as they wreak havoc on property value and create funding problems for the parks and school systems of these neighborhoods. While buyers of these foreclosed homes get these homes at low prices, everyone else involved gets hurt. The lenders of the mortgages are forced to receive less than the principal value of the loan, the borrowers are forced out of their homes and all prior payments towards the mortgage are voided, and the community feels the ripple effects.
From what transpired in the last year and a half, we can now agree that some of the problems that led to the housing crisis were created from questionable lending practices to people who could not afford to buy a house. These subprime mortgages were then repackaged in to financial instruments such as CDOs and sold by the investment banks to investors who thought that the risks that they were taking on were less than the actual level of risk of these CDOs. Many of the investment banks who were dealing with these CDOs were investing in them as well,...
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...s was in infancy, the total bailout would be less than it is today. Investors would not have lost as much money on CDS and CDO instruments and the bailout total would have been less. But that is the past. Even aside from what the government could have saved a year ago, they need to implement this program to help communities from suffering even bigger losses going forward. With foreclosures comes a decrease in property value, which leads to deterioration of the municipal institutions in the community, which ultimately will lead to fewer taxes for the government.
A government guarantee of qualified mortgage loans should alleviate this foreclosure crisis we are currently in. It is time for the government to help the individual home owners now that they have helped the big institutions. The time to act is now, before the losses become too large to alleviate.
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The Auto Bailout started in 2008 after the Great Recession occurred in 2007. Its purpose was to loan money to GM and Chrysler to keep them from shutting down. If the car companies went bankrupt, the supplier companies would also go bankrupt and many citizens would lose their jobs. Giving loans to them would increase economic activity and help bring the US out of the Great Recession. At first, the Government was only going to loan $17.4 billion for the bailout. GM wanted $13.4 billion and Chrysler wanted $4 billion. The total cost was around $80 billion. This extra amount of money came from the Government when they bought all the stocks from GM and forced them to get a new CEO for equity. Chrysler was forced to let the foreign car company, Fiat, run Chrysler for the time being. The Government did this to try and help both car companies from making decisions that would impact the economy negatively. All the stocks bought from GM were sold which helped to make up money owed to the Government. With this “final sale of GM stock, [this] important chapter of our nation’s history is now closed” (Treasury Secretary, Jacob J. Lew). The Auto...
The reality of the worst financial crisis in the last 80 years has led to wide speculation of its causes. While a plethora of theories have been offered, none have been as persistent and as patently false as the assertion that the Community Reinvestment Act of 1977 played a significant role in the housing bubble collapse. Critics of the Community Investment Act (CRA) argue that by pushing banks to meet the credit needs of low-income borrowers, the law forced lending institutions to take on riskier loans that proved to be fiscally irresponsible. The securitization and speculation of these low quality loans led to the housing bubble collapse and the wider financial crisis. This argument is subject to a number of problems, namely: the CRA never mandated lower lending standards, the CRA was enacted over a quarter of a century before the housing crash took place, none of the hundreds of banks that collapsed were subject to CRA legislation, CRA loans had a historically low level of default, and CRA loans comprised an extremely low amount of subprime loans during the relevant period of the crisis. While the CRA may have played some small part in the collapse of the housing bubble and subsequent financial crisis, it is clear that its effect was negligible. There are simply too many mitigating factors that limit the extent to which the CRA could have adversely affected the housing market for the theory to be plausible.
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...
The sub-prime mortgage market crisis started in the United States in the fall of 2006 and took hold as a global financial crisis by July 2007. Due to innovations in securitization, the risks from these sub-prime mortgages had to be shared more broadly with investors which essentially led to the ripple effects in the world-wide economy. The mortgages are generally repackaged into a variety of complex investment securities which are bought by institutions to diversify their portfolios. In the case of the U...
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...
The last quarter twelve percent (12%) of American homes are in default of their loan, or in foreclosure. Add that to the previous four quarters and that is eight point seven (8.7) million homes in crisis. (Further on known as HIC's) The United States “Bail Out” helped major mortgage corporations, and their chief executive officers (CEO's), but not the families that are in, or were in these HIC's across America.
In this story certain individuals such as, Michael Burry, Steve Eisman, Greg Lippmann, and others, realize that the housing market is going to crash and found out that because of this, they could make a lot of money. Since the 1980’s banks have been selling subprime loans to many unknowing people with the assumption that housing prices will never fall. These mortgages were bundled up into bonds known as CDO’s and these are what started the collapse. Financial institutions invested into these mortgages with the same assumption and
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...
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.
...just as welfare helped people during the great depression, this new plan could help people during this extreme recession. It is so important to keep people in their homes and not on the street and with help from our government and each individual taking responsibility for their actions, the amount of people facing foreclosure can decrease. Every American wants to know that they have a place to go home to and to call their own. For many people placing their homes up for foreclosure was something they never thought would happen and it is easy to say what one would have done to prevent this. As American we must stop blaming and looking at what has happened to the housing market and start planning on ways to fix this situation. Our country should take the resources we have now in the present, and create a plane to insure that every person is taken care of in the future.
The 2008 financial crisis led to a sharp increase in mortgage foreclosures primarily subprime leading to a collapse in several mortgage lenders. Recurrent foreclosures and the harms of subprime mortgages were caused by loose lending practices, housing bubble, low interest rates and extreme risk taking (Zandi, 2008). Additionally, expert analysis on the 2008 financial crisis assert that the cause was also due to erroneous monetary policy moves and poor housing policies. The federal government encouraged the expansion of risky mortgages to under-qualified borrowers. Congress pushed for the support of affordable housing through extended procurement of non-prime loans for applicants with low income (Zandi, 2008). The cutting down of interest rates to low levels to supplement for technology bubble of early twentieth century and the effects of Sept 11, a housing bubble was created. This move facilitated individuals with poor credit to obtain mortgages in high percentage when lenders created non-conventional mortgages by offering mortgages with extensive amortization periods, loans with interest and payment alternatives such as ARMs (Angelides et al, 2011). Ultimately, interest rates rose again and many subprime borrowers stopped paying for their mortgages when their interest rate were reset to higher monthly payments. This paper will discuss the impact of the financial crisis as a result of subprime mortgages.
Statistics shows that due to foreclosure murder rates, homelessness, and vacant properties has increased dramatically this year alone. The financial crisis is affecting the health of the economy and is fueling in recession.. This has created much problems for those that are middle class workers and low income families. It target those groups of individuals because their financial background is not up to par to be financially stabled, which later cause them to be behind in payments and things of that nature. Statistics also shows that millions of Americans spend an unexplainable amount of share on their income.
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.
As of December 29, 2009, the website Foreclosure.com reported that over 2.2 million homes in the continental USA are in some form of foreclosure, 486,323 are in pre-foreclosure and 465,490 have already been foreclosed. Over seven hundred thousand have tax liens against them and 87, 389 have been sold in Sheriff sales. Along with the homeowners, mortgage companies and banks have suffered tremendous financial loss. However, the homeowners lost so much more; they not only lost the roof over their heads, but memories, their self-esteem and their piece of the American dream.
“One out of every two hundred homes will be foreclosed every month, making 205,000 new families enter 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 cause a ripple of problems.