Housing Bubble Essay

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Recommended: Main causes of the 2008 US housing crisis

The United States fell into a deep finanical recession. One of the main causes was the housing bubble. This eventually lead to the housing crisis. When this happened it showed a rapid decline in home prices. How this housing bubble came to happen is the government not oversighting the key areas that included, consumer protection, private label mortgage securitization, bank capitlization, and finanical markets. The ones who were more likely to be targeted were consumers who already had mortages and had built up equity in their homes. Financial institutions were hit even harder, with many on the verge of bankruptcy, or failing because of the underwater mortgages. Leading to the bursting of the housing bubble were three major contributors. A cultural …show more content…

The savings rate by the 1960s was seven to eight percent. Back then people would save to purchase things they eventually wanted to get such as cars and household goods. During this time period, homeownership typically required a 20 percent down payment. Lending practices were one of the most significant contributors to the housing bubble and subsequent crisis. Banks and other lending institutions were very particular about the creditworthiness of the individuals to whom they would lend money. With a push from the federal government to get more people into homes of their own, banks began lending to people with lower credit scores, also known as subprime borrowers. Subprime mortgages carry a higher interest rate than prime rate mortgages, meaning a larger profit for the institution. The adjustable-rate mortgage, or ARM, was one way banks found they could lend back to borrowers with lower credit scores. These mortgages usually begin with a low interest rate that adjusts.. Although lending institutions were taking on risky, subprime mortgages, they didn’t look so risky at the time of the housing bubble. In the period between 1997 and 2006, home prices rose by over 132 percent. During this period, mortgage lenders were not at all concerned about default. . Banks were willing to issues loans they knew could not be paid off because they could sell these loans in the secondary market. Subprime mortgages were seen as

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