The 2008 Financial Crisis

Better Essays
introduction 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. Subprime mortgage is simply defined as loan offered to someone with a weak credit history (Zandi, 2008). Since the 2008 financial crisis had its source in the poor housing policies, low income earners consisting of members of the subprime mortgage were the most affected because of rapid increase in interest rates. ... ... middle of paper ... ...isis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States. Washington: Government Printing Office. DeSouza, P. (2007). Economic Strategy and National Security. New York: Basic Books. Phil Angelides, B. T.-E. (2011). The Financial Crisis Inquiry Report. Washington: U.S. Government Printing Office. The White House. (2014). Wall Street Reform: The Dodd-Frank Act. Retrieved from The White House: White, L. H. (2009, August). Housing Finance and the 2008 Financial Crisis. Retrieved from CATO Institute : Zandi, M. (2008). Financial Shock: A 360o Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis. New York: FT Press.
Get Access